General Dynamics Corporation 's GD business unit, Bath Iron Works (BIW), recently secured a contract for providing lead yard services (LYS) to DDG-51 class ships. Work related to the deal is scheduled to be over by June 2019.
Valued at $50 million, the contract has been awarded by the Naval Sea Systems Command, Washington, DC. However, options included in this deal, if exercised, would bring the cumulative value of the agreement to $304.8 million.
Per the deal, BIW will offer necessary engineering, technical, material procurement and production support; configuration; class flight and baseline upgrades and new technology support; data and logistics management; lessons learned analysis; acceptance trials; post-delivery test and trials. Also, the deal provisions for post-shakedown availability support; reliability and maintainability; system safety program support; material and fleet turnover support; shipyard engineering team; turnkey; crew indoctrination, design tool/design standardization, detail design development as well as other technical and engineering analyses.
Such efforts are likely to support construction as well as test and trials of the DDG 51 Class ship. Furthermore, DDG 51 Class LYS has provisions for offering design, engineering, procurement and manufacturing/production services to support design feasibility studies and analyses. These additional supports will modify DDG 51 Class destroyers for Foreign Military Sales (FMS) programs sponsored by the Department of the Navy and the Department of Defense.
Majority of the work related to this latest deal will be performed in Bath, ME. General Dynamics will use fiscal 2014, 2016 and 2017 shipbuilding and conversion (Navy) fund for completing the task.
A Brief Note on DDG-51
The DDG 51 Arleigh Burke-class is a multi-mission warship. It features an advanced anti-submarine warfare system, the AEGIS combat system, the Vertical Launching System, two embarked SH-60 helicopters along with advanced anti-aircraft missiles and land-attack missiles. Impressively, the warship offers defense against a wide range of threats, including ballistic missiles.
What's Favoring General Dynamics?
General Dynamics' Marine Systems business segment has an extensive experience in the construction of nuclear submarines, surface combatants and auxiliary ships. BIW, a unit of this segment, provides lifecycle support services for Navy surface ships. Interestingly, as of February 2018, the company secured construction contracts for six DDG-51s, scheduled for delivery through 2024. This reflects the solid demand that this class of ships boast, indicating at the possibility of increased revenue recognition from this program in the coming days.
In first-quarter 2018, Marine System's revenues totaled $2,034 million, reflecting year-over-year growth of more than 5%. We may expect the latest contract win along with the aforementioned delivery contracts to add more impetus to this segment's growth in the near future.
Furthermore, President Trump's proposed fiscal 2019 defense budget includes an investment plan of $179.1 billion for the U.S Navy. Notably, this financial plan was up 4% compared with the fiscal 2018 budget request. Considering such favorable budgetary revisions, General Dynamics, a prominent shipbuilder in the United States, is expected to win similar contracts from the U.S. Navy moving ahead.
In a year's time, shares of General Dynamics have gained 1.7% compared with the industry 's rally of 43.3%. The underperformance may have been caused by the intense competition that the company faces in the aerospace-defense space.
Zacks Rank & Key Picks
General Dynamics currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same industry are Northrop Grumman NOC , Boeing BA and Textron TXT . While Northrop Grumman sports a Zacks Rank #1 (Strong Buy), Boeing and Textron carry a Zacks Rank #2 (Buy). You can see the complete list of today's Zacks #1 Rank stocks here .
Northrop Grumman delivered an average positive earnings surprise of 13.87% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings moved up 74 cents to $16.40 in the last 60 days.
Boeing pulled off an average positive earnings surprise of 29.51% in the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings climbed 62 cents to $14.67 in the last 60 days.
Textron came up with an average positive earnings surprise of 16.6% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings moved north 10 cents to $3.15 in the last 60 days.
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