General Dynamics Wins $126M Deal to Aid Nuclear Submarines

General Dynamics Corp.’s GD business division, Electric Boat, recently clinched a modification contract for purchasing missile tube long-lead-time material to support the Columbia-class fleet ballistic missile submarines. Work related to the deal is scheduled to be over by December 2023.

Details of the Deal

Valued at $126.2 million, the contract was awarded by the Naval Sea Systems Command, Washington, DC. The agreement is a joint U.S./U.K. Common Missile Compartment program, work for which will be carried out in Quonset Point, RI.

 The U.S. Navy will purchase 72% of the modification, while the government of the U.K. will acquire the remaining 28%, under the Foreign Military Sales program.

Fiscal 2018 shipbuilding and conversion (Navy); and U.K. funding will be utilized to finance the majority portion of the task.

A Brief Note on Columbia-class Submarine

The Columbia-class submarine program, formerly known as the Ohio replacement submarine program, was designed by the Navy to replace its existing force of 14 Trident-armed Ohio-class ballistic missile submarines with a new class of 12 ballistic missile submarines. Originally built by Electric Corp., the Columbia-class submarines are also operated by the U.K., Russia, China, France and India.

Under the Navy’s Submarine Unified Build Strategy, the Columbia-class submarines will be jointly constructed by General Dynamics’ Electric Boat and Huntington Ingalls Industries’ HII Newport New division. However, the Navy has requested General Dynamics to continue as the prime contractor for designing and building the Columbia-class boats.

Why General Dynamics?

As one of the only two contractors in the world equipped to build nuclear-powered submarines, General Dynamics is a leading Navy contractor. Apart from this, the company continues to be a prime contractor for the development of Virginia-class submarines (another class of nuclear-powered submarine), with Huntington acting as the subcontractor.

Meanwhile, in February 2018, President Trump proposed fiscal 2019 defense budget which included investment provisions worth $3.7 billion for Columbia-Class Submarine. With General Dynamics being a prime contractor, we may expect the company to win more such contracts like the latest one, which will undoubtedly poise the company in a leading position in the nuclear-powered submarine industry.

Price Movement

General Dynamics’ stock has rallied about 8.1% in past three months, compared with the broader industry’s gain of 6.3%. The outperformance may have been driven by the company’s consistent focus on research and development, diverse customer base and an attractive product mix.

 

 

Zacks Rank & Key Picks                                   

General Dynamics currently carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the same sector are Boeing BA and Curtiss-Wright Corporation CW, each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boeing recorded an average positive earnings surprise of 20.69% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 76 cents to $14.05 in the last 90 days.

Curtiss-Wright Corporation recorded an average positive earnings surprise of 15.06% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 60 cents to $5.79 in the last 90 days.

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