General Dynamics (GD) Wins $1.1B Deal for Submarine Program
General Dynamics Corp.’s GD Electric Boat business division secured a modification contract involving Virginia class submarines. The award has been offered by the Naval Sea Systems Command, Washington, DC.
Details of the Deal
Valued at $1.08 billion, the contract is expected to be completed by September 2033. Per the terms of the deal, General Dynamics will provide long lead time material associated with the Virginia class submarines SSN 812 and SSN 813.
A major portion of the work related to this contract will be carried out in Sunnyvale, CA.
What’s Favoring General Dynamics?
The changing dynamics of the military landscape and the rising geopolitical tension make it mandatory for a country to continuously evolve and strengthen its defense structure. The increased defense spending is mainly due to upgrading and improvising defense systems with technologically advanced features. Military submarines with enhanced undersea warfare capabilities form an integral part of any nation’s defense system.
The increased focus on military submarines is likely to benefit General Dynamics as its Electric Boat business unit is a prime contractor of submarines.
Looking ahead, General Dynamics, along with an industry partner, is currently working on Blocks IV and V in the Virginia Class program. The company has 17 Virginia-class submarines in its backlog, scheduled for delivery through 2032.
Notably nine of the boats in Block V include the Virginia Payload Module, an 84-foot Electric Boat-designed-and-built hull section that adds four additional payload tubes, more than tripling the strike capacity of these submarines and providing unique capabilities to support special missions.
Electric Boat is responsible for all aspects of design and engineering, leading the construction of Virginia-class attack submarines. The aforementioned developments should usher in more contracts for General Dynamics, like the latest one. These contracts, in turn, are expected to boost the company’s growth.
Peer Moves
Nations are strengthening their defense capabilities. Per a report from Mordor Intelligence, the submarine market is projected to witness a CAGR of 4% during 2023-2028. Such abounding growth trends indicate ample growth opportunities for General Dynamics as it enjoys a lucrative position in the military submarine space.
A few defense primes that can reap the benefits of the expanding submarine market are BAE Systems BAESY, Northrop Grumman NOC and Huntington Ingalls Industries HII .
BAE Systems’ Astute class submarines, the U.K.’s largest and most powerful attack submarines, can strike targets up to 621 miles from the coast with pinpoint accuracy.
BAESY’s long-term earnings growth rate is pegged at 13.7%. The Zacks Consensus Estimate for the company’s 2023 earnings indicates year-over-year growth of 25.4%.
Northrop Grumman designs, develops and produces communication systems, sensors, signal processing and electronic warfare systems to counter increasingly sophisticated sea-based threats. It also provides launch systems for submarines. NOC’s eject launch technology has powered more than 7,000 successful launches.
The company has a long-term earnings growth rate of 3.8%. NOC delivered an average earnings surprise of 4.6% in the last four quarters.
Huntington Ingalls has a teaming agreement with Electric Boat to build Virginia-class fast-attack nuclear submarines. Its Newport News division is participating in the design and construction of the Columbia-class (SSBN 826) submarine as a replacement for the current aging Ohio-class nuclear ballistic missile submarines.
The Zacks Consensus Estimate for HII’s 2023 earnings indicates year-over-year growth of 2.5%. Huntington Ingalls delivered an average earnings surprise of 8.09% in the last four quarters.
Zacks Rank & Price Performance
Currently, General Dynamics carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past year, shares of GD have lost 5.9% compared with the industry’s 1.5% decline.
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Northrop Grumman Corporation (NOC) : Free Stock Analysis Report
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