A Defense Stock Still Worth Buying

With the government preparing to cut items from the Department of Defense budget, defense stocks have been beaten down in the past year. But Sterne Agee analyst Peter Arment thinks that General Dynamics (GD) should continue to fare well, as its Gulfstream jet division is performing well, and its defense products still have strong political support. He initiated coverage today with a Buy rating.

“We believe the majority of the defense austerity news is known and factored into the GD stock price. With a robust stock buy-back plan, no pension headwind, relatively flat defense mix in 2012 and the Aerospace volumes picking up, we believe value-oriented investors should buy GD. Our $82 price target is based on an 10 times P/E multiple for our 2013 estimates, a modest premium to the peer group multiple which GD has historical enjoyed since it purchased the Gulfstream business in the late 1990s.”