Recently General Dynamics Bath Iron Works, the company’s subsidiary, was awarded a $2.8 billion contract for the building of four Arleigh Burke-class destroyers. Moreover, it also has the option for the fifth ship, bringing the total contract value to $3.5 billion. This contract would provide a positive impact to General Dynamics’ operating performance in the near future.
Lockheed Martin is trading at around $103.60 per share, with a total market cap of nearly $32.95 billion. The market values the company at around 7 times EV/EBITDA. Lockheed Martin also relies on the U.S. Government for most of its businesses. In 2012, it generated around $38.8 billion in total revenue from the U.S. Government, accounting for 82% of total revenue.
In the first quarter of 2013, Lockheed Martin experienced a 2% decline in its revenue to $11.1 billion while its net income rose by as much as 14% to $761 million. In the first quarter, the company spent around $0.5 billion to repurchase around 5.1 million shares. Consequently, its EPS has a bit higher growth at 15% to $2.33 per share, compared to the EPS of $2.03 in the first quarter last year. Investors might feel a bit disappointed, as Lockheed Martin revised its sales outlook. In January, it expected to generate around $44.5 billion to $46 billion in sales. At the end of April, it estimated that its net sales would stay in the low end of the range of the previous outlook. The diluted EPS estimate for the full year stayed the same, in the range of $8.80 to $9.10 per share.
Income investors might like Lockheed Martin the most with its juiciest dividend yield at 4.3%. General Dynamics ranked second with around a 2.9% forward dividend yield, while Northrop offers investors around 3%. However, Northrop Grumman Corporation (NYSE:NOC) seems to have the most potential as it only pays out 28% of its earnings in dividends, while the payout ratio of Lockheed Martin is 50%. In the past twelve months, General Dynamics produced losses, so its payout ratio is not valid.
My Foolish take
Among the three companies, I like Northrop Grumman Corporation (NYSE:NOC) the most because of its lower valuation, the conservative payout ratio and potential share buybacks in the next two years. Investors could benefit when Northrop significantly reduces its share count, pushing up its EPS, which would lead to a share price increase.
Anh HOANG has no position in any stocks mentioned. The Motley Fool owns shares of General Dynamics, Lockheed Martin, and Northrop Grumman.
The article This Defense Stock Could Benefit Shareholders in the Near Term originally appeared on Fool.com.
Copyright © 1995 – 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.
