Buybacks -- they're back! With Fed Chairman Ben Bernanke in full money-drop mode again, the market's awash in cash. A lot of companies are convinced that there's no better use for that cash than buying their own stock. The latest firm to come to such a firm conclusion is General Dynamics (NYSE: GD), which yesterday announced its intention to repurchase 10 million shares of stock.

As you may recall, the General embarked upon a similar campaign last year. In the wake of Pentagon spending cuts that had investors scrambling to sell defense contractors, companies including General Dynamics, Northrop Grumman (NYSE: NOC), and Lockheed Martin (NYSE: LMT) rushed to scoop up cheap shares. With Defense Secretary Robert Gates wielding the budget ax once again this year, it looks as if General D is back for a second helping. As before, we ask:

Can it pay?
In theory, yes. General Dynamics has $2.6 billion in cash on hand. At current prices, the 10 million shares it wants to buy would cost just over $756 million. So in theory at least, General Dynamics can buy the shares it's authorized to, any time it likes.

Of course, the company also has $3.2 billion in debt to pay off, so it probably won't blow all its cash in one go. Still, with more than $2.6 billion in free cash flow generated over the past year, I doubt the General will have much trouble executing on its buyback plans at a time of its choosing.

Should it pay?
That's a trickier question. Even if you accept the proposition that Pentagon spending worries have made defense contractors inexpensive in general, that's not to say buying back shares is necessarily the best move for General D in particular. Consider a few alternatives:

 

P/E

Price-to-Free Cash Flow

Projected Growth Rate  

General Dynamics

11.6

13.7

7.2%

Lockheed Martin

11.4

27.0

8.2%

L-3 Communications (NYSE: LLL)

10.0

8.2

8.5%

Northrop

10.8

24.3

9.2%

Source: finviz.com.

At 11.6 times earnings, General D has a valuation in line with its defense contractor peers. It's certainly less expensive than outliers like finally profitable Textron (NYSE: TXT), which sports a near-100 P/E ratio. It's significantly cheaper than hybrid defense/commercial players like Boeing (NYSE: BA) or United Technologies (NYSE: UTX) with their mid-teens multiples. But within the pure-play defense contracting world, General D's valued right in line with everybody else -- despite having the lowest growth estimates of the bunch.

What's a better place for you money? Based on current numbers, and today's estimates, L-3 Communications is arguably the best value for your investing dollar. Longer term, though, I still believe the best core stock for your portfolio remains Lockheed Martin. (To find out why, click here.)

Fool contributor Rich Smith does not own shares of any company named above. The Motley Fool has a disclosure policy.

The Fool owns shares of General Dynamics, L-3 Communications Holdings, Lockheed Martin, Northrop Grumman, and Textron.

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