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General Dynamics Wins $2.6B Deal to Upgrade M1A1 Tanks

Zacks Equity Research
Updated

General Dynamics Corporation’s GD Land Systems business unit recently clinched a contract to upgrade 786 M1A1 configured Abrams vehicles for the newly configured M1A2 System Enhancement Package Version 3. The deal also entitles the company to upgrade M1A1 vehicles to M1A12S and M1A2-K vehicles. Work related to the agreement is scheduled to be over by Dec 21, 2020.

The $2.63-billion contract was awarded by the U.S. Army Contracting Command, Warren, MI. Work locations and funding related to the deal will be determined with each order.

A Brief Note on Land Systems

General Dynamics’ Land Systems unit is a global leader in the design, engineering, production, support and sustainment of tracked and wheeled land combat military vehicles such as Main Battle Tanks, Light Armored Vehicles, Armored Fighting Vehicles, MRAPS and Weapon Systems.

Its other products include the Stryker infantry combat vehicle and gun systems, LAV family of combat and reconnaissance vehicles and mine resistant ambush protected vehicles.

Our View

With widespread geo-political tension around the globe, all nations are strengthening their arsenals and taking initiatives to upgrade land combat military vehicles. This will benefit General Dynamics to witness robust growth since it is one of the major players in the wheeled military vehicle market.

General Dynamics’ Abrams tanks provide troops with a proven decisive edge. In addition, survivability, mobility, adaptability and maintainability are important features of the tank. These capabilities make the tanks formidable. The company is the only producer of this tank in the United States, while Abrams is the only battle tank used by the U.S. military.

General Dynamics enjoys a strong international customer base for its Abrams tank, with countries like Egypt, Kuwait, Saudi Arabia, Australia and Iraq being the primary customers. Surely the latest move to upgrade these tanks will encourage international customers to modernize their existing battle tanks fleet, which in turn will invite more foreign contracts for General Dynamics.

The company intends to continue with this legacy but at lower operational and support cost. It also plans to extend service life of these tanks to 2030 and bolster the M1A1’s capabilities in urban operations. With the current U.S. administration in favor of scrumptious defense spending as well as the huge demand that the Abram fleet of tanks already enjoy in the global space, we expect the company to win more such contracts from Pentagon.

Price Movement

General Dynamics stock has moved up about 15.7% over a year compared with the broader industry’s gain of 43.2%. This underperformance may have been caused due to the budget cuts made by the prior government and the intense competition that the company faces in the domestic and international markets.

 



Zacks Rank & Key Picks

General Dynamics carries a Zacks Rank #4 (Sell).

A few better-ranked stocks from the same sector are Curtiss-Wright Corporation CW, Leidos Holdings, Inc. LDOS and Huntington Ingalls Industries, Inc. HII, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Curtiss-Wright posted an average positive earnings surprise of 11.78% in the past four quarters. The Zacks Consensus Estimate for the current-quarter earnings rose by 7 cents over the last 60 days.

Leidos Holdings has an average positive earnings surprise of 14.81% for the past four quarters. The Zacks Consensus Estimate for the current-year earnings has risen by 14 cents in the past 60 days.

Huntington Ingalls posted an average positive earnings surprise of 14.22% over the last four quarters. The Zacks Consensus Estimate for the current-year earnings has moved up 56 cents over the past 60 days.

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General Dynamics Corporation (GD) : Free Stock Analysis Report
 
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