GD's Unit to Supply Abrams Tanks

General Dynamics Land Systems, a subsidiary of General Dynamics Corporation ( GD - Analyst Report ) , has received a contract worth $132.7 million from the U.S. Army TACOM Life Cycle Management Command for the Royal Saudi Land Forces. Per the contract, the company will be responsible for the production and supply of 69 Saudi M1A2 Abrams tanks to the Kingdom of Saudi Arabia.

This contract from Saudi Arabia is part of a plan by the Kingdom of Saudi Arabia to upgrade its fleet of tanks. Basically, the company will be supplying the improved M1A2S tanks. The company expects the task to be completed by July 31, 2014.

General Dynamics has been upgrading the kingdom's fleet of M1A1 and M1A2 tanks to the M1A2S configuration preferred by the Saudis. M1A2 SEP V2 is the most advanced digital tank with improved color displays, day and night thermal sights, commander remote operated weapon station (“CROWS II”), a Thermal Management System (“TMS”) and a tank-infantry phone. The M1A2S conversion increases the efficiency and capability of the tank.

Several international armies, including Egypt, Kuwait, Saudi Arabia, Australia and Iraq, are major customers of Abrams tanks. General Dynamics’ Abrams tanks provide the troops with a proven and supreme decisive edge. Survivability, mobility, adaptability and maintainability are important features of the tank. With these features, Abrams tanks are formidable and will dominate the battlefield.

In January 2012, the company had received the contract for upgrading M1A1 tanks to the M1A2 Systems Enhancement Package (“SEP”) V2 configuration. In February 2008, the company had originally received the order from the U.S. Army TACOM Lifecycle Management Command under which it was responsible for upgrading 435 M1A1 tanks that were in the Army's inventory for more than 20 years.

The company is continuously working on conversion of the tanks to the M1A2 SEP V2 configuration. Moreover, the company is developing further upgrades proposed for the Continuous Electronics Enhancement Program (“CEEP”) building on the latest SEP and Tank Urban Survivability Kit (“TUSK”) configurations of M1A1 and M1A2 main battle tanks.

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.

Recently, the company procured three contracts worth $4.6 billion from the U.S Navy for designing and developing the next-generation strategic deterrent submarine. The contracts also included the task of constructing and purchasing of materials for Virginia-class attack submarines. This indicates that its revenue exposure is spread over a broad portfolio of products and services. This exposure to a number of uncorrelated markets will keep the overall growth momentum steady.

However, like Northrop Grumman Corporation ( NOC - Analyst Report ) and Lockheed Martin Corporation ( ( LMT - Analyst Report ) , the future prospects of the General Dynamics are also tied to the U.S. defense budget, which remains a matter of concern. The company presently retains a short-term Zacks Rank #3 (Hold) that corresponds with our long-term Neutral recommendation on the stock.