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General Dynamics (GD) Wins $62M Deal to Modify DDG-51 Ships

Zacks Equity Research

General Dynamics Corp.’s GD business unit, Bath Iron Works (BIW), recently secured a $61.7-million modification contract to complete lead yard services (LYS) for the DDG 51-class destroyer program. The contract was awarded by Naval Sea Systems Command, Washington, DC.

Details of the Deal

Per the terms of the deal, BIW will provide necessary engineering, technical, material procurement and production support, configuration, class flight and baseline upgrades, and new technology support pertaining to the DDG 51 program.

Moreover, DDG 51 Class LYS may provide design, engineering, procurement and manufacturing/production services to support design feasibility studies and analyses. This will help in the modification of DDG 51-class destroyers for foreign military sales programs.

Majority of work related to the deal will be performed in Bath, ME. The entire task is expected to be over by June 2020.

A Brief Note on DDG-51

The DDG 51 Arleigh Burke-class is a multi-mission warship. It features an advanced anti-submarine warfare system, the AEGIS combat system, the Vertical Launching System, two embarked SH-60 helicopters, and advanced anti-aircraft and land-attack missiles. Impressively, the warship offers protection against a wide range of threats including ballistic missiles.

What’s Favoring General Dynamics?

General Dynamics has been serving the U.S. Navy by constructing and delivering next-generation combat ships for decades. Being the Navy's primary surface combatant, the Aegis-equipped Arleigh Burke-class (DDG 51) destroyers witness a solid demand in the United States. Such robust demand allows General Dynamics to enjoy at an advantageous position in the shipbuilding business as the lead designer and builder of DDG 51.

n first-quarter 2019, the company’s Marine Systems, which builds combat ships and provides technical integrated planning yard services, witnessed revenue growth on a year-over-year basis. We may expect the latest contract win to add impetus to this segment’s growth in the upcoming quarters.

Furthermore, the fiscal 2020 defense budget includes an investment plan of $34.7 billion for shipbuilding, the biggest budget request in more than 20 years. The budget comprises a $5.6-billion spending provision for procuring 3 DDG 51s, which should favor General Dynamics — the primary contractor for this ship.

Price Movement

In a year’s time, General Dynamics has lost 12.6% compared with its industry’s 2% decline.

Zacks Rank & Key Picks    

General Dynamics currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same industry are Leidos Holdings, Inc. LDOS, Northrop Grumman Corp. NOC and Wesco Aircraft Holdings, Inc. WAIR, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Leidos Holdings delivered average positive earnings surprise of 6.81% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has moved 1.5% up to $4.60 over the past 90 days.

Northrop Grumman delivered average positive earnings surprise of 18.50% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has climbed 2.3% to $19.42 over the past 90 days.

Wesco Aircraft’s long-term earnings growth estimate is pegged at 12%. The Zacks Consensus Estimate for fiscal 2019 earnings has moved 3.7% north to 84 cents over the past 90 days.

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