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BAE Systems (BAESY) Wins $299M Deal to Build Combat Vehicles

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BAE Systems plc (BAESY - Free Report) recently clinched a modification contract for manufacturing the M109A7 and M992A3 combat vehicles. Valued at $298.7 million, the contract is projected to be completed by Dec 31, 2024.

The contract has been awarded by the Army Contracting Command, Detroit Arsenal, MI. The work related to this deal will be carried out in York, PA.

Significance of M109A7 and M992A3

The M109A7 is the latest howitzer in the BAE Systems M109 family of vehicles. Its improved chassis structure boasts features that offer greater survivability and commonality compared with existing systems in the armored brigade combat team while reducing operational sustainability costs by replacing obsolete components.

Meanwhile, the M992A3 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.

Considering such advanced features of these combat vehicles, BAESY may have been witnessing the surged demand for the vehicles. The latest contract win is a bright example of that.

Growth Prospects

The framework of the defense structure worldwide is continuously evolving as the Russian invasion of Ukraine has fueled the demand for strengthening the defense landscape with modernized arms and ammunitions, which can deter any warfare-like situation.

In such a scenario, the increased procurement of technologically advanced armored combat vehicles, which have the capability to carry out land missions efficiently, has been witnessed lately. This stands to benefit companies like BAE Systems, which enjoy a lucrative position in manufacturing armored combat vehicles for the military.

The global armored vehicle market’s size is likely to expand at a CAGR of 5.8% over the 2020-2025 period, per the report from the Markets and Markets research firm. The expanding size of the market 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) , which enjoy a prime position 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 6.1%. NOC’s investors have gained 30.1% 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 Light Armored Vehicles, wheeled combat vehicles and AJAX armored fighting vehicles.

General Dynamics’ long-term earnings growth rate is pegged at 9.8%. GD shares have returned 17.6% in the past year.

Raytheon is currently teaming up 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 the critical challenges of the future battlefield.

Raytheon’s long-term earnings growth rate is pegged at 10.5%. RTX shares have returned 11.4% in the past year.

Price Performance

Shares of BAE Systems have rallied 38.1% in the past year against the industry’s decline of 5%.

Zacks Investment Research
Image Source: Zacks Investment Research

Zacks Rank

BAE Systems currently carries a Zacks Rank #3 (Hold). You can seethe complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.