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A Cheap, Wide-Moat Aerospace and Defense Firm

A Cheap, Wide-Moat Aerospace and Defense Firm
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General Dynamics Corp

We like General Dynamics as a wide-moat name that remains a bit undervalued.

The company's most significant recent strategic move is its $9.7 billion acquisition of CSRA, an information technology

cybersecurity services provider to the Department of Defense and other U.S. government agencies. This deal closed in early April 2018.

Following the CSRA acquisition, General Dynamics will operate five segments: aerospace systems, which manufactures Gulfstream business jets; combat systems, a military tank and ground vehicle business, which builds the venerable M1 Abrams main battle tank; marine systems, which focuses on

submarines; information technology and cybersecurity services; and a smaller mission systems business that makes radios and communications systems for the U.S. military.

We think investors continue to underappreciate the recovery taking hold in business jets, and some investors are also applying a generic conglomerate discount to General Dynamics, despite management's proven ability to drive value creation for shareholders and the fact that General Dynamics is a clear market leader in business jets, submarine construction, and information technology and other services for the U.S. government.

It's also worth noting that the company has a long track record of performing for investors, generating positive economic profit nine out of the past 10 years, and it also recently became a dividend aristocrat, which means it has increased its dividend for 25 straight years.

The stock remains one of the cheaper names in our aerospace and defense coverage.

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About the Author

Chris Higgins

Senior Equity Analyst
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Chris Higgins, CFA, is a senior equity analyst for Morningstar Research Services LLC, a wholly owned subsidiary of Morningstar, Inc. He covers aerospace and defense companies, airports, and airlines.

Before joining Morningstar in 2015, Higgins spent eight years working for Airbus Group in both the United States and Europe. While at Airbus Group, he held a variety of positions, ranging from corporate development to investor relations.

Higgins began career in strategy consulting, where he consulted leading U.S. and European aerospace and defense prime contractors. During his time in consulting, he led teams that solved business challenges ranging from merger and acquisition decisions to new product launches.

Higgins holds a bachelor’s degree in economics from Rhodes College, where he graduated as a member of Phi Beta Kappa, and a master’s degree in finance from The Henley Business School in the United Kingdom. He also holds the Chartered Financial Analyst® designation.

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