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General Dynamics (GD) Wins $314M Contract to Support Submarines

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General Dynamics Corporation (GD - Free Report) recently clinched a modification contract for industrial base development and an expansion of submarines. The contract has been awarded by the Naval Sea Systems Command, Washington, DC.

Details of the Agreement

Valued at $313.9 million, the contract work comprises manufacturing a strategic weapon support system kit and the development and expansion of a submarine industrial base, which is part of the Integrated Enterprise Plan supporting Columbia-class ballistic missile submarines and the nuclear shipbuilding enterprise.

The contract is expected toconcludein September 2029, while the majority of work related to the contract will be executed in Quonset Point, RI.

General Dynamic’s Growth Prospects in Submarines

Over the past few years, countries worldwide have been witnessed to be making significant investments in submarines to improve their underwater capabilities amid the rising geopolitical tension.

In this context, General Dynamics’ Columbia-class ballistic missile submarine and Virginia-class submarines enjoy huge demand due to their state-of-the-art features and GD’s continuous effort to upgrade submarines with advanced technology. This, in turn, resulted in huge contract inflows for submarines manufacturers like General Dynamics. The latest contract win is a testament to that.

Going ahead, the company intends to invest $1.8 billion of capital in expanding and modernizing the facilities at Electric Boat to support growth in submarine construction. This should further boost the capability of the company to manufacture next-generation submarines to support the huge demand for effective and efficient national security globally.

Growth Prospects

As nations increase their spending on defense arsenals, the demand for submarines is likely to grow. Per a report from Mordor Intelligence, the global submarine market is projected to witness a CAGR of 4% over the 2022-2031 period.

The expanding size of the market is likely to benefit companies like General Dynamics with an impressive product portfolio in the submarine arena. Defense majors who are likely to benefit from this growth trend are BAE Systems (BAESY - Free Report) , Huntington Ingalls Industries (HII - Free Report) and 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 targets up to 621 Miles from the coast with pinpoint accuracy.

The long-term earnings growth rate for BAE Systemsis pegged at 5.3%. Shares of BAESY have appreciated 26% in the past year.

Huntington Ingalls is into designing and building nuclear-powered submarines for the U.S. Navy. The company enjoys 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 Ingalls’ 2022 has been revised 2.1% in the last 60 days. Shares of HII have declined 6.5% in the past six months.

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

The long-term earnings growth rate for Northrop Grumman is pegged at 6.1%. Shares of NOC have increased 22.3% in the past year.

Price Movement

In the past year, shares of General Dynamics have rallied 19.6% against the industry’s decline of 39.1%.

Zacks Investment Research
Image Source: Zacks Investment Research

Zacks Rank

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