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General Dynamics' Electric Boat Wins $105M U.S. Navy Deal


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Defense prime General Dynamics Corp.’s (GD - Analyst Report) subsidiary Electric Boat Corp., secured a modification contract for Phase 2 of the Sea Dragon Submarines Development program. Valued at $105.5 million, this contract incorporates test planning efforts to support ground and sea-based testing of this submarine.

This contract, awarded by the Supervisor of Shipbuilding Conversion and Repair, Groton, CT, will utilize fiscal 2016 research, development, test and evaluation funds. The work, expected to be completed by Sep 2018, will be executed at the Groton shipyard in Connecticut.

About Sea Dragon Submarine

Electric Boat’s SSN584 Seadragon is a type of nuclear-powered skate-class attack submarine which was launched long back in 1954 and was earlier used to serve the U.S. Navy. Notably, skate-class submarines were the U.S. Navy’s first production run of nuclear powered submarines.

Current Scenario

Attack submarines are designed to seek and destroy enemy submarines and surface ships. Currently the U.S. Navy has three classes of nuclear-powered attack submarines: Virginia-class, Ohio-class and Los Angeles-class. These submarines will be operational until 2070.

Our View

We remind investors that General Dynamics is one of the only two contractors in the world equipped to build nuclear-powered submarines. General Dynamics’ Marine Systems business segment, which manufactures nuclear submarines, has been a consistent contributor to the company’s growth trajectory for quite some time in the past.

Although this segment showed no revenue growth in the second quarter, management has raised its top line expectation from this unit by $100-$200 million, for the year 2016. Surely this indicates significant improvement in this segment’s business performance.

Moreover, President Obama's fiscal year 2017 budget proposal calls for $582.7 billion in funding for the Pentagon, which includes $71.4 billion for R&D and $8.1 billion for submarines (with over $40 billion in the next five years). Going forward, this will definitely boost General Dynamics’ business growth from its nuclear submarines division.

Zacks Rank and Stocks to Consider

General Dynamics currently carries a Zacks Rank #2 (Buy). A few better-ranked stocks in the aerospace and defense sector include Engility Holdings, Inc. (EGL - Snapshot Report) , Leidos Holdings, Inc. (LDOS - Snapshot Report)  and Ducommun Inc. (DCO - Snapshot Report) .

Engility sports a Zacks Rank #1 (Strong Buy) and has witnessed a 2.32% surge in its last day’s stock price. On average, the company delivered a positive earnings surprise of 12.09% in the trailing four quarters.

Ducommun sports a Zacks Rank #1 and has witnessed a 5.50% surge in its last day’s stock price. On average, the company delivered a negative earnings surprise of 44.58% in the trailing four quarters.

Leidos Holdings sports a Zacks Rank #2 (Buy) and has witnessed a 2.49% surge in its last day’s stock price. On average, the company delivered a negative earnings surprise 6.54% in the trailing four quarters. You can see the complete list of today’s Zacks #1 Rank stocks here.

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