Back to top

Image: Bigstock

General Dynamics' (GD) Arm Wins Support Deal for USS Hartford

Read MoreHide Full Article

General Dynamics Corporation’s (GD - Free Report) business unit, Electric Boat, recently clinched a modification contract to support the USS Hartford (SSN 768) submarine. The contract has been awarded by the Naval Sea Systems Command, Washington, DC.

Details of the Deal

Valued at $22.2 million, the contract is expected to conclude in February 2022. Per the terms, Electric Boat will provide smart start maintenance, repair and modernization efforts to support the engineered overhaul for the USS Hartford (SSN 768).

Work related to the contract will be executed in Groton, CT.

General Dynamics’ Growth Prospects in Submarines

Rising geopolitical tensions globally have resulted in countries strengthening their defense systems. Nations have also increased their defense spending on arsenals and equipment related to maritime conflicts in a bid to strengthen their underwater capabilities. In this context, submarines, the integral part of any naval defense system, have also recorded a surge in demand.

Consequently, in lieu of such strong demand, defense majors worldwide have been building innovative and state-of-the-art nuclear-powered submarines that exhibit the highest reliability and can sustain maritime conflicts.

In this regard, it is worth mentioning that General Dynamics enjoys a dominant position in building nuclear-powered submarines in the United States. Its excellence in building stealth submarines and its continuous efforts to upgrade these with enhanced features have resulted in multiple contract wins for General Dynamics. The latest contract win is a testament to that.

General Dynamics has been making hefty investments at its Electric Boat unit with an aim to modernize and expand its facility to increase its production rate and meet the ramped-up demand. Hence, GD will be investing $1.8 billion to expand and modernize facilities at Electric Boat.

Per a report from Mordor Intelligence, the global submarine market is projected to witness a CAGR of 4% through 2027. Such strong growth trends indicate ample opportunities for General Dynamics to prosper in the submarine manufacturing arena and boost the profitability of its Electric Boat unit.

Peer Prospects

Considering the aforementioned growth prospects of the global submarine market, it is safe to conclude that defense majors, namely Huntington Ingalls (HII - Free Report) , BAE Systems (BAESY - Free Report) and Northrop Grumman (NOC - Free Report) , which enjoy a strong presence in the submarine space, will benefit.

The Virginia-class submarine, co-designed by General Dynamics and Huntington Ingalls, has all stealth submarine features that would be suitable for any marine warfare. The submarine excels in littoral and open-ocean environments and collects intelligence critical to the full spectrum of warfare.

The Zacks Consensus Estimate for Huntington’s 2022 earnings has been revised upward 2.6% in the past 90 days. Shares of HII have rallied 16.1% in the past year.

BAE Systems’ Astute class submarines are the largest and most powerful attack submarines in the United Kingdom and can strike targets up to 621 Miles from the coast with pinpoint accuracy.

The long-term earnings growth rate for BAE Systemsis pegged at 3.6%. Shares of BAESY have appreciated 22.6% in the past year.

Northrop Grumman designs, develops and produces communication systems, sensors, signal processing and electronic warfare systems to counter increasingly sophisticated sea-based threats. It also provides launch systems and torpedoes for submarines.

The long-term earnings growth rate for Northrop Grumman is pegged at 7.9%. NOC's shares have increased 34.7% in the past year.

Price Movement

In the past year, shares of General Dynamics have rallied 37.9% against the industry’s decline of 27.2%.

Zacks Investment ResearchImage Source: Zacks Investment Research

Zacks Rank

General Dynamics currently carries a Zacks #4 (Sell).

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