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GD in DDG 51 & FFG 7 Navy Contract

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General Dynamics Corporation's (GD), subsidiary General Dynamics Bath Iron Works, has received a modification contract from U.S Navy worth $70.5 million to provide ongoing planning yard services to the DDG 51 Arleigh Burke-class guided missile destroyer and the FFG 7 Oliver Hazard Perry-class frigate programs.

The contract is an extension of the initial contract received in June 2012. In June 2012, the company had received contract for these two ships worth $66.1 million. The contract is valued at $371.6 million if all the options are exercised and fully funded.

Bath Iron Works handles post-delivery maintenance and modernization activities for all DDG 51-class ships and FFG 7-class ships. The managing task includes designing, material kitting, logistics, planning and execution.

One more very common contract received by General Dynamics is for Virginia-class nuclear-powered attack submarines from the U.S. In November 2012, the company had received a contract worth $88.8 million to provide research and development and lead-yard services for Virginia-class nuclear-powered attack submarines from the U.S Navy.

Recently, the company had received a production contract from the U.S. Army worth $306 million for 3,726 Handheld, Manpack, Small Form Fit (“HMS”) AN/PRC-155 Manpack radios.

The current contract modification will provide the U.S. Navy with high-quality and modernization services. This ensures that the ships of the Navy's surface combatant fleet are ready for use. Overall, these contracts exhibit the Navy's continued confidence in the company.

These contracts get benefited from the acquisitions made by the company of late. For example, in August this year, the company had completed the acquisition of the Ship Repair and Coatings Division of Earl Industries.  The Ship Repair and Coatings Division is a prime contractor for nuclear aircraft carrier multi-ship, multi-option contracts. The contract provides maintenance, modernization and repair services to all ships of a class in specific homeport areas. The company also provides maintenance and repair services to frigates and other classes of naval ships. This acquisition would improve the company’s ability to compete in the growing naval ship-repair market.
We also note that General Dynamics’ revenue exposure is spread over a broad portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; shipbuilding design, repair and construction; and information systems, technologies and services. Diversification of revenue through exposure to a number of uncorrelated markets will keep the overall growth momentum steady.

However, like all defense majors like Lockheed Martin Corporation (LMT), and Raytheon Company (RTN), the future prospects of the company are tied to the U.S. defense budget. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Based in Falls Church, Virginia, General Dynamics engages in mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems; and business aviation. The company operates through four segments: Information Systems & Technology, Combat Systems, Marine Systems, and Aerospace.

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