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General Dynamics (GD) Wins Deal to Build Submarine With VPM

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Zacks Equity Research
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General Dynamics Corp.’s GD Electric Boat division recently secured a $2.42 billion worth modification contract to exercise an option for the construction of one Block V Virginia-class submarine with Virginia Payload Module (VPM). The deal was awarded by The Naval Sea Systems Command, Washington, DC.

Majority of work related to this deal will be executed in Newport News, VA and Quonset Point, RI. The contract is expected to be completed by February 2030.

Recent Developments in Virginia-Class Submarines

General Dynamics is the lead contractor of the Virginia-class submarine program. Since the delivery of the lead Virginia-class submarine, General Dynamics has substantially reduced the cost and delivery time of these submarines from 84 months to 66 months alongside improving mission capability and ship construction quality. Notably, the company is developing the VPM for the fifth block of Virginia-class submarines.

In 2019, the Navy awarded Electric Boat a $22.2-billion contract, the largest shipbuilding deal in the Navy’s history for construction of the fifth block of Virginia-class submarines. Notably, with the Block V contract, there are now 19 Virginia-class submarines in the company’s backlog, scheduled for delivery through 2029. This surely reflects the solid demand that Virginia class submarines enjoy in the shipbuilding market.

Interestingly, General Dynamics has been investing $1.8 billion of capital in expanded and modernized facilities at Electric Boat to support the growth in submarine construction. This will enable the company to cater to the solid demand for its Virginia class submarines in the shipbuilding market.

What Favors General Dynamics?

Being one of the only two contractors in the world equipped to build nuclear-powered submarines, General Dynamics enjoys a dominant position as a Navy contractor. Moreover, the United States is strategically strengthening its naval power by upgrading missile submarines, driven by the rising widespread geo-political tensions across the world.

Inevitably, demand for its technical expertise and other support services required for proper functioning of submarines also remains high. As a result, defense giants like General Dynamics enjoy a smooth flow of contracts like the latest one.

Looking Ahead

Per a Technavio report, the global naval shipbuilding market is expected to reach $14.36 billion during the 2020-2024 period, seeing a CAGR of approximately 3%. This, in turn, is likely to drive demand for various assault ships and submarines. General Dynamics — being a major shipbuilding giant — should benefit from these growth opportunities.

Other submarine manufacturers like Bae Systems PLC BAESY, Mitsubishi Heavy Industries, Ltd. MHVYF and Huntington Ingalls Industries HII are also likely to benefit from the same.

Price Performance & Zacks Rank

Shares of General Dynamics have gained 54.6% in a year compared with the industry’s surge of 43.7%. The company currently carries a Zacks Rank #4 (Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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General Dynamics Corporation (GD) : Free Stock Analysis Report

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Mitsubishi Heavy Industries, Ltd. (MHVYF) : Free Stock Analysis Report

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