BAE Systems Plc’s BAESY Norfolk Ship Repair facility recently clinched a contract to provide ship repairing services for USS Laboon (DDG 58), an Arleigh Burke-class warship. The award has been offered by the Naval Sea Systems Command, Washington, D.C.
Details of the Deal
Valued at $114.8 million, the contract includes options, which, if exercised, would bring the cumulative value of this deal to $117.9 million. Per the terms of the deal, BAESY will be involved in the maintenance, modernization and repair of USS Laboon. In particular, the company will offer labor, supervision, equipment, production, testing, facilities and quality assurance necessary to prepare for critical modernization, maintenance and repair programs.
Work related to this project is projected to be completed by February 2026 and will be executed in Norfolk, VA.
What’s Favoring BAESY Stock?
In recent times, multiple factors have driven the global demand for military ship repairs, with the primary one being rising geopolitical tensions and the resultant need for enhanced maritime defense capabilities, which have prompted many nations to maintain and upgrade their naval fleets. This apart, aging military ships require regular maintenance to ensure operational readiness, reliability and technological advancements. Additionally, increased investment in naval modernization programs, the expansion of maritime patrols and the growing focus on cybersecurity upgrades for naval vessels have steadily contributed to the demand for modernization and associated ship repairs.
As the global demand for military ship repairs rises, so does the growth prospect of the naval vessel maintenance, repair, and overhaul (MRO) market. This is likely to have prompted the Mordor Intelligence firm to forecast a compound annual growth rate of 2.1% for the global naval vessel MRO market during the 2024-2029 period.
This market growth prospect should bode well for shipbuilders like BAESY, which are witnessing a solid order flow for conducting such modernization and repair jobs on warships. The latest contract win is a bright example of that. Notably, the company is a leading provider of Maintenance, Repair, Overhaul and Conversion services to the non-nuclear surface ship fleet. In particular, its Norfolk Ship Repair is a 109-acre facility that offers ship repairing support 24 hours a day, 365 days a year.
Growth Opportunities for BAESY’s Peers
Other defense majors that are likely to enjoy the perks of the expanding naval vessels MRO market have been discussed below:
General Dynamics GD: Its NASSCO is the largest, full-service shipyard on the West Coast of the United States, capable of maintaining or repairing any ocean-going vessel. Because of its location, expertise and shipyard capabilities, NASSCO is a Master Ship Repair contractor for the U.S. Navy and serves as a principal repair facility for its Pacific Fleet ships.
Looking ahead, the stock boasts a long-term earnings growth rate of 12.40%. The Zacks consensus estimate for GD’s 2024 sales reflects a 12.5% improvement from the year-ago reported figure.
Huntington Ingalls Industries HII: Its Newport News Shipbuilding unit has been involved in the design, construction, overhaul and repair of more than 800 ships for the U.S. Navy and commercial customers. For more than 40 years, the U.S. Navy has entrusted HII to maintain and modernize the vast majority of its fleet.
Looking ahead, the stock boasts a long-term earnings growth rate of 6.90%. The Zacks Consensus Estimate for HII’s 2024 sales reflects a 2.9% improvement from the year-ago reported figure.
Northrop Grumman NOC: It supplies advanced defense systems, including navigation, control and combat systems for naval vessels. NOC’s Integrated Platform Management Systems (“IPMS”), sometimes referred to as a Machinery Control System, is a sophisticated control system solution for naval vessels. Increased investments in ship MRO services can be expected to boost the demand for NOC’s IPMS.
Looking ahead, the stock boasts a long-term earnings growth rate of 8.70%. The consensus estimate for NOC’s 2024 sales reflects a 5.4% improvement from the year-ago reported figure.
BAESY Stock’s Price Movement
In the past month, shares of BAE Systems have risen 1.6% compared with the industry’s 0.9% growth.
Image Source: Zacks Investment Research
BAESY’s Zacks Rank
BAE Systems currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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