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General Dynamics (GD) Wins $434M Submarine Development Deal

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General Dynamics Corp.’s (GD - Free Report) Electric Boat division recently secured a contract to offer lead yard support, development studies and design efforts related to Virginia class submarines. The deal has been awarded by The Naval Sea Systems Command, Washington, DC.

Valued at $434.4 million, the deal is expected to be completed by September 2020. Through this contract, Electric Boat will also provide all engineering and related lead yard support necessary for direct maintenance and support of Virginia class ship specifications.

The majority of the deal will be executed in Groton, CT.

Virginia-Class Submarines Recent Developments

General Dynamics is the lead contractor of the Virginia-class submarine program, its largest program in 2018 and the largest contract in its backlog. The company's Marine Systems segment that manufactures these submarines had a year-end backlog totaling $8.8 billion for 11 Virginia-class submarines, scheduled for delivery through 2023.

Since the delivery of the lead Virginia-class submarine, General Dynamics has substantially reduced the cost and delivery time for these submarines from 84 months to 66 months alongside improving mission capability and ship construction quality. Moreover, the company is also developing the Virginia Payload Module (VPM) for the fifth block of Virginia-class submarines, scheduled to begin construction in 2019. The VPM will support the Navy’s fleet plans providing significant upgrades in size and performance.

What Favors General Dynamics?

General Dynamics, one of the only two contractors in the world equipped to build nuclear-powered submarines, enjoys a dominant position as a Navy contractor. Moreover, the United States is strategically strengthening its naval power by upgrading missile submarines amid rising geo-political tensions across the world.

Inevitably, demand for its technical expertise and other support services required for the proper functioning of submarines also remains high. As a result, defense giants like General Dynamics enjoy a smooth flow of contracts, like the latest one.

Looking Ahead

Per a report by Globaldata firm, the global submarine market is expected to witness CAGR of 3.4% from 2019 to reach a value worth $31.3 billion in 2023. The global submarine market is expected to be led by North America, which will account for almost half of the global spending, with revenue share of 49%. With General Dynamics being a prominent U.S. submarine maker, such projections, should benefit the company in the coming days.

Price Performance

In a year’s time, shares of General Dynamics have lost 8% against the industry’s 4.2% growth.

 

Zacks Rank & Stocks to Consider   

General Dynamics has a Zacks Rank #3 (Hold).

A few better-ranked stocks in the same space are Leidos Holdings, Inc. (LDOS - Free Report) , Lockheed Martin Corp. (LMT - Free Report) and Northrop Grumman Corp. (NOC - Free Report) . While Leidos Holdings sports a Zacks Rank #1 (Strong Buy), Lockheed Martin and Northrop carry a Zacks Rank of 2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Leidos Holdings’ long-term growth estimate currently stands at 7.5%. The company exceeded the Zacks Consensus Estimate for earnings in the last four quarters, the average being 6.51%.

Lockheed Martin’s long-term growth estimate currently stands at 7.10%. The company exceeded the Zacks Consensus Estimate for earnings in the last four quarters, the average being 16.03%.

Northrop’s long-term growth estimate currently stands at 12.4%. The company outpaced the Zacks Consensus Estimate for earnings in the last four quarters, the average being 20.11%.

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