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General Dynamics Gets Navy Contract

NOC GD HII

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General Dynamics Electric Boat, a subsidiary of General Dynamics Corporation (GD - Analyst Report), has received a $100.4 million contract modification from the US Navy to provide lead-yard services for Virginia-class nuclear-powered attack submarines.

Electric Boat will develop, maintain and update design drawings and data, including technology insertions, for each Virginia-class submarine throughout its construction and post-shakedown availability periods.

The contract has a potential cumulative value of $881 million through 2014 if all options are exercised and funded.

The Virginia-class submarine program is a class of nuclear-powered fast attack submarines in service with the U.S. Navy. These submarines are designed for a broad spectrum of open-ocean and littoral missions. Moreover, they are less costly than Seawolf class attack submarines. Due to their technical excellence and schedule performance, they assist the Navy in dominating both the open ocean and the littorals.
In partnership with the Navy, Electric Boat has been successfully pursuing its goal to reduce ship costs while focusing on improvement in overall efficiency.

Going forward, key growth drivers for the company include the improving business jet market, its stable business of U.S. military vehicles, an ongoing share repurchase program and strong cash flow generation. However, the company is largely tied to the U.S. defense budget, where the threat of budget cuts is looming. Also, we are concerned about the risks related to the execution of key projects.

The company presently retains a short-term Zacks #4 Rank (Sell). We have a long-term Neutral recommendation on the stock.

General Dynamics is expected to release its third quarter 2012 results on October 24, 2012. The Zacks Consensus Estimates for the third quarter and full year 2012 are $1.77 and $7.10, respectively.

Based in Falls Church, Virginia, General Dynamics engages in mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems; and business aviation. The company operates through four segments: Information Systems & Technology, Combat Systems, Marine Systems, and Aerospace.

The company mainly competes with Northrop Grumman Corporation (NOC - Analyst Report) and Huntington Ingalls Industries Inc. (HII - Snapshot Report).

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