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General Dynamics Corp.’s GD business division, Electric Boat, recently secured a modification contract to provide lead yard support efforts for the entire fleet of Columbia-class ballistic missile submarines (SSBNs), through 2028. The Naval Sea Systems Command, Washington, D.C. has awarded the deal.
Details of the Deal
Valued at $475 million, the contract is projected to be completed by December 2031. Per the terms of the deal, Electric Boat will lend continued support for class continuous production of shipyard components and aid in shipyard labor to support fully outfitted missile tubes.
It will also support submarine industrial base development and expansion as part of the integrated enterprise plan (IEP) and multi-program material procurement, supporting Columbia SSBNs and the nuclear shipbuilding enterprise (Virginia-class and Ford-class).
The majority of the work will be executed in Groton, CT.
What Favors General Dynamics?
The United States along with many other nations is strategically strengthening its naval power by upgrading missile submarines due to the rising worldwide geopolitical tensions. General Dynamics enjoys a dominant position as a Navy contractor as the demand for submarines remains high. In fact, the company is one of the only two contractors in the world equipped to build nuclear-powered submarines. This gives an extra edge to the company in the submarine market.
Furthermore, the fiscal 2021 defense budget proposal includes a spending provision of $4.4 billion specifically for Columbia-class submarines, reflecting a massive surge of 100% from the investments provisioned in the fiscal 2020 budget. Such a stupendous budgetary amendment reflects the possibility of an inflow of contracts for this shipbuilder’s Columbia-class submarines and associated support efforts. The latest contract win is an example of that.
Per a report by the Research and Markets firm, the global submarine market is expected to see a 4% CAGR from 2020 to 2025. This indicates increased demand for different variants of submarines, including the Columbia-class ballistic missile submarines. As submarines are a vital part of the U.S. navy fleets, General Dynamics is likely to benefit from such favorable market trends. These trends should also benefit other submarine makers like Huntington Ingalls HII, BAE Systems BAESY, and MitsuBishi Heavy Industries MHVYF around the world.
General Dynamics’ shares have gained 38.9% in the past year against the industry’s decline of 4.9%.
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General Dynamics currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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