General Dynamics Corp.’s GD business unit, Electric Boat, recently secured a modification contract involving the submarine program. The award has been provided by the Naval Sea Systems Command, Washington, D.C.
Valued at $43 million, the contract is expected to be completed by September 2024. Per the terms of the deal, General Dynamics will provide engineering and technical design effort to support Research and Development Concept Formulation for current and future submarine platforms.
Majority of the work related to this deal will be executed in Groton, CT.
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. To this end, military submarines and other defense ships with enhanced undersea warfare capabilities form an integral part of any nation’s defense system.
Therefore, the increased focus on military submarines is likely to benefit General Dynamics with its Electric Boat business unit being the prime contractor and lead shipyard on all Navy nuclear-powered submarine programs. The unit has established standards of excellence in the design, construction and lifecycle support of submarines for the U.S. Navy. The latest contract win is a bright example of that.
Looking ahead, General Dynamics is investing $1.8 billion of capital in expanded and modernized facilities at Electric Boat to support growth in submarine construction. It expects to substantially complete the investments by the end of 2023. Such investments are expected to enhance Electric Boat’s capability in submarine construction as well as provide lifecycle support for the same, which should enable it to win more contracts in the future.
Nations are investing heftily in submarines to improvise and upgrade their sea warfare capabilities. Looking ahead, per a report from Mordor Intelligence, the submarine market is projected to witness a CAGR of more than 4% between 2023 and 2028. This indicates ample growth opportunities for General Dynamics as it enjoys a lucrative position in the military submarine space.
A few other 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 are the U.K.’s largest and most powerful attack submarines and can strike targets up to 621 miles from the coast with pinpoint accuracy.
BAESY has a long-term earnings growth rate of 14%. The Zacks Consensus Estimate for BAE Systems’ 2023 sales indicates an improvement of 33.6% from the 2022 reported figure.
Northrop Grumman designs, develops and produces communication systems, sensors, signal processing and electronic warfare systems to counter the increasingly sophisticated sea-based threats. The company also provides launch systems for submarines. Its eject launch technology has powered more than 7,000 successful launches.
Northrop Grumman has a long-term earnings growth rate of 4.1%. The Zacks Consensus Estimate for NOC’s 2023 sales indicates growth of 5.7% from the 2022 reported figure.
Huntington Ingalls is another renowned submarine builder in the United States, with its division, Newport News, being one of the only two U.S. shipyards capable of designing and building nuclear-powered submarines. Newport News 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 sales indicates an improvement of 3.5% from the 2022 reported figure. Huntington Ingalls delivered an average earnings surprise of 1.76% in the last four quarters.
Zacks Rank & Price Performance
Currently, General Dynamics carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
In the past year, shares of GD have risen 0.3% against the industry’s decline of 5%.
Image Source: Zacks Investment Research
Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report