General Dynamics Corp.’s (GD - Free Report) subsidiary, Ordnance and Tactical Systems, Inc., recently secured a $149.2 million modification deal for Hydra rockets, motors and associated components. The contract was awarded by the U.S. Army Contracting Command, Redstone Arsenal, AL, under the foreign military sales (FMS) program.
Details of the Deal
Per the terms of the deal, General Dynamics will deliver various quantities of M151, M274, M257, M278, M156, M264, M278, and WTU-1/B warheads for Hydra-70 rockets, motors and associated components to Saudi Arabia, Afghanistan, Kenya, Jordan, Nigeria and Qatar.
Work related to the deal will be performed in Williston, VT and Hampton, AZ, and is expected to get completed by Feb 28, 2021. General Dynamics will utilize fiscal 2016, 2017 and 2018 other procurement (Army) funds for completing the task.
Advantages of the Hydra-70 Rockets
General Dynamics' Hydra-70 rockets include unitary and cargo warheads for use against point and area targets, providing the user a lethal and lightweight weapon system with multi-mission capability. The Hydra-70 rockets are universally compatible with the Advanced Precision Kill System (APKWS).
Fitted to the MK66 MOD 4 motor, these warheads provide low-cost munitions capable of area suppression and defeating threats at extended ranges, as well as providing battlefield obscuration, illumination and marking.
These rockets provide military personnel with affordable firepower, matched to the mission for effective engagements and area suppression of a long list of lower-value targets on the battlefield. These advanced rockets can also be mounted on most of the rotary and fixed-wing aircraft, which include the Apache, Cobra and F-16.
What’s Favoring General Dynamics?
As widespread geo-political tensions loom across the globe, many nations are strengthening their arsenals and taking significant initiatives to upgrade rocket systems. This, in turn, should boost General Dynamics’ overall growth in the rocket and missile market.
Notably, General Dynamics' Combat Systems segment that manufactures and supplies Hydra-70 rockets, registered $1.44 billion of sales in the first quarter of 2018, reflecting 11.9% year-over-year growth. We may expect General Dynamics to witness similar strong results in this segment in upcoming quarters as well, buoyed by strong demand for its combat-proven rocket systems, eventually leading to contract wins like the latest one. This, in turn, should expand the company’s profit margin.
Moreover, the fiscal 2019 defense budget, recently approved by the U.S. Senate, provisions for a spending plan of $1.2 billion on the Guided Multiple Launch Rocket System. Such robust budgetary allotments should aid General Dynamics in acquiring major contracts from the Pentagon, related to its various rocket systems.
Furthermore, the rocket and missile market is projected to grow from $55.5 billion in 2017 to $70 billion by 2022, at a CAGR of 4.74%, during the forecast period (as per Markets and Markets research firm). This, in turn, should enable General Dynamics to enhance its market share in the aerospace and defense industry.
General Dynamics’s stock has lost 5.4% in the last year compared with its industry’s growth of 30.4%. The underperformance may have been caused by the intense competition that the company faces in the aerospace-defense space.
Zacks Rank & Key Picks
General Dynamics currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same space are Northrop Grumman (NOC - Free Report) , Textron (TXT - Free Report) and Wesco Aircraft Holdings (WAIR - Free Report) .
While Northrop Grumman sports a Zacks Rank #1 (Strong Buy), Textron and Wesco Aircraft Holdings carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
Northrop Grumman delivered an average positive earnings surprise of 13.87% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 5.65% to $16.44 in the last 90 days.
Textron came up with an average positive earnings surprise of 16.64% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 2.94% to $3.15 in the last 90 days.
Wesco Aircraft Holdings’ long-term growth rate is pegged at 12%. The Zacks Consensus Estimate for 2018 earnings has risen by 10% to 77 cents in the last 90 days.
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