General Dynamics Corp.
) unit - Electric Boat Corp. - won a $520 million sole-source
undefinitized contract action, or UCA, from the U.S. Department
of Defense (DoD) on Feb 4, 2013.
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This latest contract is essential for the purchase of long
lead-time materials for the construction of the Virginia-class
nuclear fast attack submarines SSN 794, SSN 795, SSN 796, and SSN
797. Pentagon generally issues funds through these UCAs to the
defense contractors for the commencement of work even prior to
the signing of a final contract between the parties.
As per this UCA, General Dynamics will use these funds to pay for
steam and electric plant components, as well as for work on the
submarines' main propulsion units and turbine generators, along
with purchases of steel, and miscellaneous hull, mechanical, and
electrical system components. Work under this UCA is slated for
completion by Jan 2015.
General Dynamics Electric Boat is a unit of General Dynamics
Corp. and has been the prime builder of submarines for the U.S.
Navy for over 100 years. General Dynamics' joint Virginia Class
submarine program with
Huntington Ingalls Industries Inc.
) is the backbone of the U.S. Navy's covert surveillance and
reconnaissance operations under sea. The Virginia class of attack
submarines is designed for a wide range of deep-sea and littoral
missions. It has been the company's most profitable defense
offering and will continue to win deals from the DoD.
Despite the risk of defense budget cuts, we believe its varied
product offerings will provide General Dynamics with a cushion
against any loss of contracts. The company was able to exceed its
2013 earnings expectation.
However, we remain apprehensive about the company's Marine
Systems division that contributed less to its bottom line during
the fourth quarter. Again, the company's total backlog at the end
of the fourth quarter was $46 billion, which declined 4%
sequentially and 10.3% year over year. In the last reported
quarter, orders were strong in the Aerospace group; however,
delivery and lower order booking for the other segments lowered
the overall backlog of the company.
General Dynamics currently has a Zacks Rank #3 (Hold). Other
heavyweights in the industry include
Northrop Grumman Corp.
Lockheed Martin Corp.
). While Northrop sports a Zacks Rank #1 (Strong Buy), Lockheed
carries a Zacks Rank #2 (Buy).