How Can It Be Bad To Be A Defense Contractor In This Environment?

is it bad to be a defense contractor during wartime?
right now apparently, as General Dynamics
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has tumbled precipitously since announcing its third-quarter
earnings yesterday. And why are shares of GD getting hammered? Did they commit
the cardinal sin of missing Street estimates?

the maker of everything from nuclear submarines to tanks and destroyers posted
an 11% profit increase on gains across both its military and commercial
segments. They did announce that they expect to post a loss in the latest
quarter. However, the sucker-punch was that the company said the analysts were on
their own”
for projections in future quarters. YIKES!
That, folks, is what traders refer to as an earnings warning. Serve it any way
you like, telling the Street that you cannot support their estimates is
tantamount to a pre-announcement of an earnings miss.

that’s not good
but it is only part of the reason for the sell-off yesterday. The rest of the
story, as Paul Harvey says, is that the market is not all that excited about the
bidding war for rival Newport News Shipbuilding
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between GD and Northrop
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silver lining in the storm surrounding the defense contracting giant is that
shares are back down to levels where we believe the stock represents a value,
rather than a reach, especially when you consider the earnings ($4.53 per
share), a relatively cheap P/E of just 17 and double-digit growth of both sales
and earnings growth over the past five years.

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Tom Haugh (
and the entire cast of characters, on “Doctor J and
the Traders”
Our weekly round-table discussion on the markets will be live at 5:00 PM ET.