This General Dynamics Insider Isn’t Worried About Spending Cuts

Other defense companies include Lockheed Martin Corporation (NYSE:LMT), Raytheon Company (NYSE:RTN), and Northrop Grumman Corporation (NYSE:NOC). These peers trade between 8 and 10 times their trailing earnings, with analyst expectations generally showing flat earnings over the next two years with the result being that they are in line with General Dynamics on a forward earnings basis. Since their businesses are also exposed to government contracts they would face the same spending cut risk as General Dynamics, and in their most recent quarter each of these companies reported a decline in earnings compared to the same period in the previous year. Raytheon and Northrop Grumman offer similar dividend yields to General Dynamics at 3 to 3.5%, with Lockheed Martin paying a yield of over 5% at current dividend levels.

We would hesitate to take this particular insider purchase as a bullish signal, and there does not seem to be much in particular to recommend General Dynamics relative to its peers other than that. The range of earnings multiples for the industry is quite narrow- though they are low- and from an income perspective we suppose that Lockheed Martin does look attractive. However, any value or income investor would have to satisfy themselves that lower military spending- and not just a one time cut but a permanently lower level of business- would not have too drastic an impact on any chosen investment.

Disclosure: I own no shares of any stocks mentioned in this article.