General Dynamics Busy Underwater

Zacks

General Dynamics Electric Boat, a subsidiary of General Dynamics Corporation (GD), has received a contract modification from the U.S. Navy worth $117.8 million for the development of submarines and undersea platforms.  

This contract is a modification of an earlier agreement entered in November 2010 worth $35.9 million. Per the original contract, the company had to develop advanced submarine technologies. It had announced that if all options are exercised and funded, the contract would have a potential value of $711.4 million over five years.

The present contract calls upon the company to develop superior submarine technologies for existing as well as forthcoming marine platforms. In order to support the wide range of technology areas that include preservation, proper maintenance and survivability of hydro dynamics, acoustics and materials, the company will carry out advanced submarine research and development studies.

Additional areas where the company will deploy research and development work include manning, hull integrity, performance, ship control, logistics, weapons handling and safety.

General Dynamics is engaged in mission-critical information systems and technologies, land and expeditionary combat vehicles, armaments and munitions and shipbuilding and marine systems. The company has been looking after the Virginia-class submarines for a long time now. The current contract also includes task for near-term Virginia-class technology insertion, identification of Ohio-class replacement technology options, future submarine concepts and core technologies.

The company is deeply involved in performing various task orders for shipbuilding and marine systems. Recently, it received a $6.8 million contract modification for designing and procurement of a common controller for various shipboard functions on Virginia-class submarines. This modification contract is a part of an overall engineering contract that it had received in July 2010.

Besides, the company’s revenue exposure that is spread over a broad portfolio of products and services, its improving business jet market, its stable business of U.S. military vehicles, ongoing share repurchase program and strong cash flow generation place it in a better position in comparison to its peers.

However, the risks related to budget cuts and execution of key projects are a matter of concern for the company. Like its peers, Lockheed Martin Corporation (LMT) and Textron Inc. (TXT), the company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

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