General Dynamics Corporation
) wholly owned subsidiary Electric Boat has received a contract
modification worth $88.8 million to provide research and
development and lead-yard services for Virginia-class
nuclear-powered attack submarines of the U.S Navy. If all the
options are exercised and funded, then the contract will have a
potential value of $881 million through 2014.
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Per the contract, General Dynamics will perform research and
development work to assess the best new technology to be
introduced in newly built Virginia-class ships. Further, it will
carry out development studies and other work related to
Virginia-class submarine design improvements.
Recently, in October, the company had received a contract
modification worth $100.04 million with respect to the current
contract under which it will develop, maintain and update design
drawings and data, including technology insertions, for each
Virginia-class submarine throughout its construction and
post-shakedown availability periods. In May 2012, it had received
a $6.8 million U.S. Navy contract modification to design and
procure a common controller for various shipboard functions on
Virginia-class submarines. Originally, the company had received
the contract worth $171.8 million in July 2010 to provide
lead-yard services for Virginia-class nuclear-powered attack
Due to its proven technical capabilities, maintenance and
modernization, and its ability of concept formulation and design
through construction, Electric Boat has been receiving a number
of contracts for Virginia-class submarines.
General Dynamics is likely to continue to deliver solid growth
driven by revenue and margin expansion and cash flow generation.
Looking forward, key drivers include a reviving business jet
market business and a stable business for Stryker combat vehicles
and Abrams tanks. Moreover, huge number of contracts would boost
the company's revenue.
However, we are concerned due to the U.S. defense budget, where
the threat of budget cuts is looming. Also, we have turned
slightly cautious about the company's risks related to the
execution of key projects.
Like its peers,
Lockheed Martin Corporation
Northrop Grumman Corporation
), the company presently retains a short-term Zacks #3 Rank
(Hold) that corresponds with our long-term Neutral recommendation
on the stock.
Based in Falls Church, Virginia, General Dynamics Corporation
engages in mission-critical information systems and technologies;
land and expeditionary combat vehicles, armaments and munitions;
shipbuilding and marine systems; and business aviation.