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General Dynamics Electric Boat, a subsidiary of General Dynamics Corp. (GD - Analyst Report), has received an extension to its previous contract worth $208.6 million from the U.S. Navy to buy long lead time material for three Virginia-class submarines.

The submarines for which lead time material will be provided are SSN-793, SSN-794 and SSN-795. Long lead-time material includes steam and electrical-plant components, main propulsion unit and ship-service turbine generator sets, and miscellaneous hull, mechanical and electrical-systems components to support construction of these submarines.

The Virginia-class submarine program is a class of nuclear-powered fast attack submarines serving the United States Navy. These submarines are designed for a broad spectrum of open-ocean and littoral missions. Moreover, they are less costly than the Seawolf class of attack submarines. Due to their technical excellence and schedule performance, the Virginia-class submarines assist the Navy in dominating both the open ocean and the littorals.

The initial contract for these submarines, for $78 million, was provided in Apr 2012. Per the contract, the company had to supply long lead-time material for the Virginia-class submarine SSN-792. Long lead-time material included Propulsion System, Ship Service Diesel Generators, Ship Service Transformers, Switchboards, Propeller Shaft and bearings, Navigation and Communication Electronic Systems, Trawl Winch System Propeller Shaft and bearings and many other such items.

Again, in Dec 2012, the company received a contract worth $308 million to purchase long lead-time materials for SSN-793 and SSN-794. Together these contracts bring the total value to approximately $595 million.  

General Dynamics’ revenue exposure is spread over a broad portfolio of products and services that will keep the overall growth momentum steady. Electric Boat is a unit of Marine Systems. Marine Systems is a leading U.S. shipbuilder, designing, building and supporting a diverse portfolio of ships for the U.S. Navy and commercial customers. Its products include nuclear-powered submarines, surface combatants and combat-logistics ships, and Jones Act commercial ships.

In partnership with the Navy, Electric Boat has been successfully pursuing its goal to reduce ship costs while focusing on improvement in overall efficiency. However, like all defense majors, the future prospects of the company are tied to the U.S. defense budget. The company presently retains a short-term Zacks Rank #3 (Hold).

Stocks well placed in the industry are Erickson Air-Crane Inc. (EAC - Snapshot Report), The Boeing Company (BA - Analyst Report) and Northrop Grumman Corp. (NOC - Analyst Report). While Erickson Air-Crane carries a Zacks Rank #1 (Strong Buy), The Boeing Company and Northrop Grumman hold a Zacks Rank #2 (Buy).

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