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General Dynamics Wins $45M Deal for Knifefish Program

Zacks Equity Research

General Dynamics Corp.’s GD business unit, Mission Systems, recently won a modification contract for low-rate initial production (LRIP) of the Surface Mine Countermeasure Unmanned Undersea Vehicle (SMCM UUV). Work related to the deal is expected to be completed by August 2021.

Valued at $44.6 million, the contract was awarded by the Naval Sea Systems Command, Washington, D.C. Per the deal, the LRIP effort will provide the initial systems for the Navy to test and operate. Majority of the task will be performed in Quincy and Taunton, MA.

Importance of the Knifefish Program

The SMCM UUV, also known as Knifefish, helps in detection and classification of undersea volume, bottom and buried mines in high-clutter environments. It is designed for deployment off the Littoral Combat Ship (LCS).

Knifefish also gathers environmental data to provide intelligence support for other mine warfare systems.

Our View

In order to combat the rising widespread geo-political tensions worldwide, the United States has strategically strengthened its naval power by developing and upgrading combat ships over the last few years. Notably, the demand for LCS has increased rapidly, of late. This is because LCS fulfills the urgent requirement for shallow draft vessels to operate in the littoral (coastal waters) for countering increased potential threats from coastal mines and quiet diesel submarines. It also has the potential to carry explosives and terrorists on small, fast, armed boats.

With General Dynamics being a prominent military shipbuilder in the United States, the company has been witnessing increasing flow of contracts from the U.S. Navy, like the latest one, which has the potential to boost the nation’s naval defense. In fact, the core mission system of the U.S. Navy's Independence-variant LCS is built on General Dynamics' computing infrastructure.

Meanwhile, the fiscal 2020 U.S. defense budget has made provisions for spending $34.7 billion on shipbuilding, reflecting the largest budget allocation in more than 20 years. Such budgetary developments should usher in more similar contract for General Dynamics, which in turn, are likely to boost the company’s profit margin.

Price Movement

In a year’s time, shares of General Dynamics have lost 5.4% against the industry’s 6% rise.

 

Zacks Rank & Other Key Picks    

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

Wesco Aircraft Holdings boasts a solid long-term earnings growth rate estimate of 12%.  The Zacks Consensus Estimate for fiscal 2019 earnings has moved 1.2% up to 85 cents over the past 90 days.

Leidos Holdings delivered average positive earnings surprise of 6.51% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has climbed 2.2% to $4.68 over the past 90 days.

Northrop Grumman delivered average positive earnings surprise of 20.11% in the last four quarters.  The Zacks Consensus Estimate for 2019 earnings has moved 1.8% north to $19.63 over the past 90 days.

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