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General Dynamics (GD), AeroVironment Ink Deal to Develop UAS

Zacks

General Dynamics Corp.’s GD Land Systems unit, recently entered into a strategic partnership with AeroVironment, Inc. AVAV to jointly develop advanced unmanned aircraft systems (UAS) and tactical missile systems (TMS). Notably, these weaponries will get incorporated in armored ground combat vehicles.

While AeroVironment is one of the leading manufacturers of a variety of commercial drones and loitering missile systems, General Dynamics’ Land Systems unit specializes in manufacturing ground combat vehicles. Such combat proven expertise of both these contractors should make the aforementioned strategic partnership a unique one.

Benefits Expected From the Partnership

As widespread geo-political tensions loom across the globe, both these companies joined forced keeping in mind the next-generation capabilities required by warfighters and military personnel. With the integration of UAS and missile systems in armored vehicles, the joint effort will not only develop next-generation vehicles capable of launching armed drones with precision to targeted areas, but will also improve a warfighter’s situational awareness and survivability along with ensuring increased automation and decreased workload for soldiers.

Both the companies’ collaborative projects will also address the upcoming U.S. Army Next Generation Combat Vehicle (NGCV) and U.S. Marine Corps (USMC) Armored Reconnaissance Vehicle (ARV) programs. These programs will significantly look to benefit from automated drone scout and precision loitering missile engagement technologies.

Per Markets Research Future firm, the military drone market is projected to see a CAGR of 8% during 2017-2023. This growth can be primarily attributed to the increased demand for drones in the military application, integration in the current warfare systems to combat and counter threats, and the overall cost-effectiveness as compared to manned aircraft. Also, increased focus of OEMs on aircraft MRO service and rapid aircraft fleet expansion are some other key drivers that could contribute toward growth of the global military drone market.

Notably, such expected growth within the military drone market in the next five years is likely to benefit drone makers like AeroVironment. This, in turn, should benefit General Dynamics as it has tied up with AeroVironment.

Recent Budgetary Developments

The fiscal 2019 defense budget, approved by the U.S. Senate toward the end of June 2018, provisions for a spending plan of $5.8 billion on Ground Systems, which also includes armored ground vehicles. Such robust budgetary allotments will definitely enable prominent defense contractors like General Dynamics in acquiring contracts and awards related to wheeled combat and armored vehicles. Further, with the integration of drones and tactical missiles within ground vehicles will significantly solidify the company’s presence in the defense space.

Price Movement

General Dynamics’ stock has lost 7.1% in the past year against the industry’s growth of 17.3%. The underperformance may have been caused by the intense competition the company faces in the aerospace-defense space.


Zacks Rank and Stocks to Consider

General Dynamics currently carries a Zacks Rank #4 (Sell).

A few better-ranked stocks in the same sector are Heico Corporation HEI and Huntington Ingalls Industries HII, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Heico came up with an average positive earnings surprise of 2.15% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen 2.73% to $1.88 in the last 90 days.

Huntington Ingalls pulled off an average positive earnings surprise of 9.48% in the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings has moved 6.4% north to $17.24 in the last 90 days.

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