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BAE Systems (BAESY) Wins $97M Deal to Build Combat Vehicles

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BAE Systems plc (BAESY - Free Report) recently clinched a modification contract for the production and delivery of M109A7 and M992A3 vehicles. Valued at $97.3 million, the contract is projected to be completed by Dec 31, 2024. The deal has been awarded by the U.S. Army Contracting Command, Detroit Arsenal, MI. Work related to the deal will be performed in York, PA.

Significance of M109A7 and M992A3

The M109A7 program enhances reliability, maintainability, performance, responsiveness and lethality of the combat-proven M109A6 Paladin Self-Propelled Howitzer and M992A2 Field Artillery Ammunition Support Vehicle (FAASV) while providing increased commonality within the U.S. Army Armored Brigade Combat Team.

The M992A3 FAASV is built on the same framework as the M109A7. Also known as the Carrier Ammunition Tracked, this vehicle serves as a heavily armored munitions carrier. Its superstructure can carry 95 artillery rounds, powders and primers.

Such enhanced features must have attracted the U.S. Army and resulted in multiple order wins for the vehicles. The aforementioned contract win is a testament to that.

Growth Prospects

Nations are strengthening their warfare capabilities amid rising geopolitical tensions and amplified terrorist attacks. Spending on armored vehicles has also increased manifold as countries improve their land warfare skills.

Going forward, growth in armored vehicles is anticipated to increase, underpinned by solid demand. Per a report by the Markets and Markets research firm, the global armored vehicles market is projected to rise from $11.6 billion in 2020 to $15.4 billion by 2025 at a CAGR of 5.8%.

Such bright growth prospects will not only benefit BAE Systems but also defense majors like Northrop Grumman (NOC - Free Report) , General Dynamics (GD - Free Report) and Raytheon Technologies (RTX - Free Report) , prime players in the combat vehicle space.

Northrop Grumman is the world’s top producer of medium-caliber live and training ammunition and gun systems, with more than five million units built in the last five years. It specializes in innovating low-cost, highly reliable precise weapons, and ammunition for artillery and mortar systems, medium-caliber weapon platforms, battle tanks and individual soldiers.

Northrop Grumman has a long-term earnings growth rate of 8.9%. NOC’s investors have gained 35.8% in the past year.

General Dynamics’ Land Systems is a global leader in tracked and wheeled military vehicles. Its military vehicle program comprises the Abrams main battle tank, the family of Stryker and LAV wheeled combat vehicles and AJAX armored fighting vehicles.

General Dynamics’ long-term earnings growth rate is pegged at 9.1%. GD’s shares have returned 39.7% in the past year.

Raytheon is currently teaming with American Rheinmetall Vehicles to meet the U.S. Army’s current requirement for a true, next-generation Optionally Manned Fighting Vehicle, namely the Lynx Infantry Fighting Vehicle. The Lynx Infantry Fighting Vehicle is a next-generation, tracked, armored fighting vehicle designed to address critical challenges of the future battlefield.

Raytheon’s long-term earnings growth rate is pegged at 13.2%. RTX’s shares have returned 29.6% in the past year.

Price Movement

In the past year, shares of BAE Systems have rallied 13.4% compared with the industry’s growth of 15.3%.

Zacks Investment ResearchImage Source: Zacks Investment Research

Zacks Rank

BAE Systems currently carries a Zacks Rank #5 (Strong Sell).

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.