Gleacher on General Dynamics (NYSE:GD), Raytheon (NYSE:RTN), Lockheed Martin (NYSE:LMT)

After the briefing by Secretary of Defense Gates gave a road-map to the strategy of Pentagon spending over the next five years, Gleacher says they see large caps like General Dynamics (NYSE:GD), Raytheon (NYSE:RTN) and Lockheed Martin (NYSE:LMT) on solid footing.

Gleacher said, "Yesterday, Secretary of Defense Gates outlined how the Pentagon will reprioritize $100 billion in savings towards modernization, as well as an additional $78 billion in defense cuts over the next five years. The fiscal realignment recognizes the fact that defense budgets are not immune to the broader budget realities facing the nation. However, in prioritizing funding in favor of turnkey programs, the Gates program ensures that the past is not repeated where military capabilities are gutted. Rather, by proactively addressing the pending budgetary issues Gates has preempted Congress from making any irrational cuts to key programs due to mounting deficit pressures. Further, as we had anticipated, the briefing came with very few surprises, and in fact, the strong support toward modernization was actually better than expected.

"Given the slight growth provided by the Gates roadmap, solid balance sheets, strong cash flows and a potential for buy-backs, the large-cap defense group appears to have regained solid footing. Therefore, it is reasonable to assume that valuations of the group could lift from current levels at less than 10x P/E back to spring 2010 levels closer to 12x P/E. We reiterate our Buy ratings on General Dynamics (NYSE: GD) and Raytheon (NYSE: RTN), and while Lockheed Martin (NYSE: LMT) is Neutral rated, we expect the entire group to participate in this relief rally."

General Dynamics was trading at $72.16, up $0.77, or 1.08 percent, as of 1:21 PM EST. Raytheon was trading at $50.24, up $1.52, or 3.12 percent. Lockheed was trading at $73.81, gaining $0.63, or 0.86 percent.