General Dynamics Corp.'s (GD - Free Report) business subsidiary, National Steel and Shipbuilding Co. (NASSCO), recently secured a $1.08-billion contract for the construction of Expeditionary Sea Base (ESB) 6 and 7 ships. The deal was awarded by the Naval Sea Systems Command, Washington, DC.
Per the terms, General Dynamics will also provide long lead time material, pre-production and engineering support for the ESB 6 ships. Work related to the deal is expected to get completed by January 2025, while the majority of the task will be performed in San Diego, CA.
A Brief Note on ESB Program
General Dynamics' ESB, formerly known as the Mobile Landing Platform (MLP) or Afloat Forward Staging Base (AFSB), is a highly flexible ship that offers logistics movement from sea to shore. ESB vessels are designed to support low-intensity missions, enabling more expensive, high-value amphibious warfare ships and surface combatant warships to be re-tasked for more demanding operational missions of the U.S. Navy. ESB ships operate as mobile sea bases, providing the Navy Fleet with a critical access infrastructure that supports the flexible deployment of forces and supplies, whenever necessary.
What Favors General Dynamics?
General Dynamics' NASSCO specializes in conducting full-service maintenance and surface-ship repair operations for the U.S. Navy. In 2018, the company delivered four of its ESB auxiliary support ships. Such consistent contract flow reflects solid demand growth for NASSCO-served ships. This, in turn, reflects the subsidiary’s strong potential in generating notable revenues for General Dynamics.
Moreover, the fiscal 2020 defense budget provisioned for a shipbuilding investment worth $34.7 billion, a whopping 89% rise from the fiscal 2019 budget's allotment. With General Dynamics being a prominent shipbuilder in the United States and ESB being the centerpiece of the U.S. Navy’s forward-deployed airborne mine countermeasures mission (AMCM), such budgetary developments reflect the company's solid growth prospects.
What Lies Ahead?
Interestingly, per Technavio, the global naval shipbuilding market is expected to see a CAGR of 2% from 2019 to 2023. This, in turn, should increase demand for technical services required to upgrade different variants of ships, including aircraft carriers. General Dynamics is likely to benefit from such favorable projections, going forward.
Shares of General Dynamics have gained 12.5% in the past three months compared with the industry’s growth of 6.8%.
Zacks Rank & Key Picks
General Dynamics currently carries a Zacks Rank #3 (Hold).
A few better-ranked stocks in the same space are Wesco Aircraft Holdings , Northrop Grumman Corp. (NOC - Free Report) and Lockheed Martin Corp. (LMT - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Wesco Aircraft’s long-term growth estimates currently stand at 12%. The Zacks Consensus Estimate for 2019 earnings has increased 1.2% to 85 cents in the past 60 days.
Lockheed Martin’s long-term growth estimates currently stand at 7.1%. The Zacks Consensus Estimate for 2019 earnings has risen 3.41% to $21.20 in the past 60 days.
Northrop Grumman’s long-term growth estimates currently stand at 12.4%. The Zacks Consensus Estimate for 2019 earnings has risen 1.13% to $19.63 in the past 60 days.
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