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General Dynamics Corporation’s (GD - Analyst Report) unit General Dynamics Electric Boat (GDEB) has received a 5-year Indefinite Delivery/Indefinite Quantity (IDIQ) contract, worth $215.5 million, from the U.S. Navy.

Per the agreement, the company will operate under the navy’s submarine safety (SUBSAFE) program and offer maintenance support for the submarines. GDEB will provide tools, facilities and other necessary supports for installation, repair and maintenance of electrical and mechanical equipments, and weapons.

General Dynamics’ GDEB segment is a part of its Marine Systems group. This business vertical designs and manufactures a wide array of ships for the U.S. Navy and its other commercial customers. GDEB has fixed the standard of excellence for drawing, creation and lifecycle support of the navy's ballistic missile and attack submarines.

The SUBSAFE program is an operating as well as casualty control measures initiated by the U.S. Navy after the defeat of the USS Thresher (SSN-593) in 1963. This program includes implementation of reliable maintenance and material requirements, and emergency recovery arrangements.

Over the years, General Dynamics has a long-standing business association with the U.S. Navy and tries to meet its commitments in terms of maintaining products and services standard along with delivery timing. Few days ago, the company received an agreement modification, worth $41.6 million, from the U.S. Navy to perform routine preservation and upgrade its Los Angeles-class attack submarine the USS Hartford (SSN-768).

As the U.S. Department of Defense is one of the key customers of General Dynamics, any further U.S. defense budget cutbacks could limit the company’s future growth prospects. We believe this factor is one of the main reasons for the drop in Marine Systems group’s total backlog by 7.6% year over year to $17.1 billion in fourth-quarter 2012.

However, we believe that the company’s capability to obtain consistent contracts from national as well as international clients, particularly from the U.S. Navy will improve the top line going forward.

General Dynamics Corporation currently has a Zacks Rank #3 (Hold). Other stocks from the industry we presently prefer are Zacks Rank #2 (Buy) Alliant Techsystems Inc. (ATK - Analyst Report), The Boeing Company (BA - Analyst Report) and Lockheed Martin Corporation (LMT - Analyst Report).

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