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General Dynamics (GD) Wins Contract to Support Submarines

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General Dynamics Corporation (GD - Free Report) recently clinched a modification contract to support research and development and formulation of new concepts for current and future submarine platforms. The contract has been awarded by the Naval Sea Systems Command, Washington, DC.

Valued at $12.8 million, the contract is expected to conclude in Sep 2022. Majority of the work related to the contract will be executed in Groton, CT.

General Dynamic’s Growth Prospects in Submarines

Rising geo-political tensions globally have persuaded  countries to strengthen their defense system. Additionally, tensions have intensified at the water borders of several countries, resulting in maritime conflicts. Consequently, this has resulted in huge investments in submarines by countries globally over the past few years to improve their underwater capabilities.

The huge defense spending on submarines has also been driving the demand for submarines and the need to modify them with enhanced features. This, in turn, has resulted in huge contract inflows for submarines for companies like General Dynamic. The latest contract win is a testament to that.

In this context the Virginia-class submarine, co-designed by General Dynamics and Huntington Ingalls (HII - Free Report) ,is worth mentioning here. This stealth submarine is equipped with features that make it suitable for any marine warfare. The submarine excels in littoral and open-ocean environments, and collects intelligence critical to the full spectrum of warfare. They also excel in extended submerged operations on account of superior stealth, endurance, mobility and firepower features.

Backed by such advanced features,General Dynamic enjoys a strong demand for its Virginia-class submarines. It is worth mentioning that General Dynamic Electric Boat aims to build two submarines each year for a period of five years. Additionally, the company has 18 Virginia-class submarines in its backlog, which are scheduled for delivery in 2029, thereby reflecting solid revenue growth opportunities.

In fact, in order to meet the increased demand for the submarines and improve the production rate, General Dynamic has been making huge investments with an aim to modernize and expand its facility at Electric Boat for submarine construction. Interestingly, the company will be investing $1.8 billion to expand and modernize facilities at Electric Boat.

Looking Ahead

As nations across the globe increase their spending on defense arsenals, the demand for submarines is likely to grow. Per a report from Research and Markets firm, the global submarine market is projected to witness a CAGR of 4.36% through 2031. Such strong growth trends indicate ample growth opportunities for General Dynamic. Other aerospace majors who are likely to benefit from this growth trend are BAE Systems (BAESY - Free Report) , Huntington Ingallsand Northrop Grumman (NOC - Free Report) .

For instance, BAE Systems’ Astute class submarines are the U.K.’s largest and most powerful attack submarines and can strike at targets up to 621 Miles from the coast with pin-point accuracy.

The long-term earnings growth rate estimate for BAE Systemsis pegged at 4.8%. Shares of BAESY have appreciated 4.2% in the last one year.

Huntington Ingalls is into designing and building nuclear-powered submarines for the U.S. Navy. The company holds a dominant position in the submarine industry, with the United States being a stalwart in the global defense space.

The Zacks Consensus Estimate for Huntington’s 2021 earnings has been revised upward by1.6% in the last 60 days. The shares of HII have lost 7.8% in the last one year.

Northrop Grumman designs, develops, and produces communication systems, sensors, signal processing, and electronic warfare systems to counter the increasingly sophisticated sea-based threats. Northrop Grumman provides launch systems for the submarines, and its eject launch technology has powered over 7,000 successful launches.

The Zacks Consensus Estimate for Northrop Grumman 2021 earnings has been revised upward by2.6% to $25.57 in the last 60 days. Shares of Northrop Grumman have gained 14% in the past one year.

 Price Movement

In the past one year, shares of General Dynamics have gained 23.1% against the industry’s decline of 36.7%.

Zacks Investment ResearchImage Source: Zacks Investment Research

Zacks Rank

General Dynamics currently carries a Zacks #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.