GD Clinches Saudi Contract

Zacks

General Dynamics Corp. (GD) secured two back-to-back contracts totaling over $214.4 million. The bigger award, a foreign military sales contract, was won by General Dynamics Land Systems, an ancillary of the company and is worth approximately $187.5 million.

The contract calls for the conversion of 44 M1A1 and 40 M1A2 model tanks to a M1A2S configuration for the Kingdom of Saudi Arabia. The contracting authority is the U.S. Army Contracting Command - Tank and Automotive, Warren, Mich. The work related to the contract will be executed in Lima, Ohio and Sterling, Mich.

The other contract valued at $26.9 million was awarded to the company’s business unit, General Dynamics Ordnance & Tactical Systems, for providing support services to the Navy’s Mission Payload Module Non-Lethal Weapon System (MPM-NLWS), product manager non-lethal systems, program manager and infantry weapon systems.

The contracting activity is The Marine Corps System Command, Quantico, Va. The contract is expected to be concluded by May 2016 and the work will be carried out in Orlando, Fla.  

Saudi Arabia is lately turning out to be a key client for General Dynamics. The M1A1 vehicles are the current favorites and have drawn customers largely from Egypt, Kuwait, Saudi Arabia, Australia and Iraq.

Order inflows from the Middle East are likely to rise further owing to increasing security risks arising from civil and political disturbances. Saudi Arabia’s plans to increase its defense expenditure to 8.6% of gross domestic product by 2017 will prove beneficial for General Dynamics’ future growth.

Contract flows from the Department of Defense has been encouraging with the company receiving a whopping $562.2 million contract for the supply of Ground Mobility Vehicles 1.1 (GMV 1.1), a modified Humvee. The growing order book makes us believe that the company is well positioned in the industry thanks to its varied offering of high-tech defense products.

However, budget austerities will be more severe in fiscal 2014 and remains a concern for General Dynamics. Presently, the company carries a Zacks Rank #3 (Hold). Other better-placed defense players at the moment are Zacks Ranked #2 (Buy) Northrop Grumman Corp. (NOC), Raytheon Co. (RTN) and B/E Aerospace, Inc. (BEAV).
 

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