General Dynamics NASSCO, a wholly owned subsidiary of
General Dynamics Corporation
(
GD
), announced that it has finalized a contract with TOTE Inc., for
the design and construction of two 3,100 TEU LNG-powered
containerships. When completed the 764-foot-long containerships
are expected to be the largest ships of any type in the world
primarily powered by liquefied natural gas.
Construction is scheduled to begin in the first quarter of 2014,
with first delivery to occur by the fourth quarter of 2015. The
second ship will be delivered in the first quarter of 2016. The
contract between NASSCO and TOTE Shipholdings Inc., a subsidiary
of TOTE Inc., includes options for three additional ships.
The ships will be designed by DSEC, a subsidiary of Daewoo
Shipbuilding & Marine Engineering, located in Busan, South
Korea.
Headquartered in Falls Church, Virginia, General Dynamics engages
in mission-critical information systems and technologies; land
and expeditionary combat vehicles, armaments and munitions;
shipbuilding and marine systems; and business aviation. The
company operates through four segments: Information Systems &
Technology (IS&T), Combat Systems, Marine Systems, and
Aerospace.
General Dynamics was the third largest U.S. defense contractor in
terms of revenue in fiscal 2011, after
The Boeing Company
(
BA
) and
Lockheed Martin Corporation
(
LMT
). The company is one of two contractors equipped to build
nuclear-powered submarines in the U.S.
Looking forward, key growth drivers for General Dynamics include
the improving business jet market, its stable business of U.S.
military vehicles, a backlog (though declining) of $51.5 billion,
an ongoing share repurchase program and strong cash flow
generation. However, the company is largely tied to the U.S.
defense budget, where the threat of budget cut is high. Also, we
have turned slightly cautious about the company's steadily
dropping order backlog, and risks related to the execution of key
projects.
General Dynamics' total order backlog decreased to $51.5
billion at the end of the first nine months of 2012 from $59.6
billion at fiscal-end 2010. Going forward, the U.S. economic
fundamentals are basically being kept on a leash as the
Euro-crisis continues to cast its spell over the financial
markets, keeping risks of further cutbacks in future defense
budgets at a high level. Our apprehension is fueled by $15
trillion of national debt and an unemployment rate hovering
around 7.9% which would lead to the Budget Control Act's dictum
of automatic cutbacks across the board going forward.
Going by the pulse of the economy and the pros and cons, we
prefer to maintain our long-term Neutral recommendation on the
stock. Moreover, General Dynamics holds a Zacks #3 Rank that
translates into a short-term Hold rating.
BOEING CO (BA): Free Stock Analysis Report
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