General Dynamics Wins $44M Hydra Rockets Deal from U.S. Army

General Dynamics Corp.’s GD business subsidiary, Ordnance and Tactical Systems, Inc., recently secured a $44.3-million modification deal for the delivery of Hydra rockets. The contract has been awarded by the U.S. Army Contracting Command, Redstone Arsenal, Alabama.

Details of the Deal

Per the terms of the deal, General Dynamics will provide Hydra rockets to Afghanistan, Nigeria, Australia, Lebanon and the Philippines, under the foreign military sales program.

Work related to the contract will be performed in Williston, VT and is expected to get completed by Mar 31, 2021. General Dynamics will utilize fiscal 2010, 2016, 2017 and 2018 other procurement; Army; foreign military sales; and Department of Defense funds for completing the delivery.

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 with a lethal and lightweight weapon system with multi-mission capability. The Hydra-70 rockets are universally compatible with the Advanced Precision Kill System (APKWS). These warheads provide low-cost munitions, which are capable of area suppression and defeating threats at extended ranges, when fitted
to the MK66 MOD 4 motor.

These rockets provide military personnel with affordable firepower that enable them to effectively engage and suppress area of lower-value targets on a 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. Evidently, the rocket and missile market is projected to see a CAGR of 4.74% to $70 billion (as per Markets and Markets research firm) during 2017-2022. This reflects solid growth prospects for rocket makers like General Dynamics to further expand their footprint in the rocket and missile market.

Notably, General Dynamics' Combat Systems segment that manufactures and supplies Hydra-70 rockets registered $1.53 billion of sales in the second quarter of 2018, reflecting 8.5% year-over-year growth. We may expect General Dynamics to witness similar strong results in this segment in the upcoming quarters as well, buoyed by strong demand for its combat-proven rocket systems that eventually lead to contract wins like the latest one. This, in turn, should expand the company’s profit margin.

Interestingly, the fiscal 2019 defense budget that got approved by the U.S. Senate toward the end of June 2018 provisioned for a spending plan of $1.2 billion on the Guided Multiple Launch Rocket System. Such favorable budgetary inclusions should aid General Dynamics in acquiring major contracts related to its various rocket systems, going ahead.

Price Movement

General Dynamics’s stock has lost 0.9% in the last year compared with its industry’s growth of 22.1%. The underperformance may have been caused by intense competition in the aerospace-defense space.

Zacks Rank & Stocks to Consider

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

A few better-ranked stocks in the same sector are Aerojet Rocketdyne Holdings AJRD, Engility Holdings EGL and Huntington Ingalls Industries HII.

While Aerojet Rocketdyne sports a Zacks Rank #1 (Strong Buy), Huntington Ingalls and Engility carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Aerojet Rocketdyne came up with an average positive earnings surprise of 9.27% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen 30.9% to $1.27 in the last 90 days.

Engility Holdings delivered an average positive earnings surprise of 19% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has moved up 16.1% to $2.02 in the last 90 days.

Huntington Ingalls pulled off an average positive earnings surprise of 9.48% for the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings has moved 6.4% north to $17.24 in the last 90 days.

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