General Dynamics Corp.’s GD business unit, Bath Iron Works (BIW) recently secured a $42.8-million modification contract to complete lead yard class services for the DDG 51-class destroyer program. The contract was awarded by Naval Sea Systems Command, Washington, DC.
Details of the Deal
Per the deal terms, BIW will provide lead yard services like necessary engineering, material procurement and production support; configuration; class flight and baseline upgrades and new technology supportand a few more for the DDG 51 class ship.
The contract also requires BIW to offer design, engineering, procurement and production services to support design feasibility studies and analyses for modifying DDG 51-class destroyers for Foreign Military Sales (FMS) programs.
The majority of work related to the deal will be performed in Bath, ME, and is scheduled to be completed by June 2021.
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 of Lockheed LMT, and advanced anti-aircraft and land-attack missiles. The warship offers protection against a wide range of threats, including ballistic missiles.
Notably General Dynamics is one of the two companies that constructs DDG 51, the other one being Huntington Ingalls Industries HII.
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 enjoy solid demand in the United States. Such steep demand places General Dynamics at an advantageous position in the shipbuilding business, with the company being the lead designer and builder of DDG 51.
In first-quarter 2020, the company’s Marine Systems, which builds combat ships and provides technical integrated planning yard services, witnessed 9.1% revenue growth on a year-over-year basis. We expect the latest contract win to boost this segment’s growth in the coming quarters.
The fiscal 2021 defense budget proposal includes a spending provision of $207.1 billion, indicating an increase of 0.9% from the fiscal 2020 budget. This should bode well for major shipbuilders like General Dynamics, as such favorable budgetary revisions increase the company’s possibility of winning more shipbuilding and associated contracts.
General Dynamics’ stock slipped 0.8% in the past year compared with its industry’s decline of 15.7%.
Zacks Rank & Key Pick
General Dynamics currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same sector is CAE Inc. CAE which holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
CAE delivered average positive earnings surprise of 3.48% in the trailing four quarters. The company has a long-term earnings growth rate of 8%.
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