GD Submarine Contracts Flowing In - Analyst Blog

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General Dynamics Electric Boat, a subsidiary of General DynamicsCorporation ( GD ), has received a contract modification worth $191.3 million under which it will continue concept studies, engineering and designing of a Common Missile Compartment for the United Kingdom's Successor ballistic-missile submarine and the U.S. Ohio replacement submarine. If all options are exercised and funded, the contract will be worth more than $708 million.

The employees of the subsidiary with proven technical capabilities will be responsible to complete the task of engineering and designing of the Compartment. Per the contract, these employees will work on all aspects of the submarine life cycle. They will take all necessary initiatives and steps that extend from concept formulation and design through construction, maintenance and modernization, and finally to inactivation and disposal of the cycle.

The company received a similar $15.8 million contract modification in July 2011 to perform the same functions. If all options are exercised and funded, it would have a value more than $651 million. Both these contracts are a modification to a contract received in 2008 for engineering, technical services, concept studies and design of a Common Missile Compartment for the next-generation ballistic missile submarines under development for the Royal Navy and the U.S. Navy.

General Dynamics' revenue exposure is spread over a broad portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; shipbuilding design, repair and construction; and information systems, technologies and services. Looking forward, key drivers include the improving business jet market (Gulfstream), its stable business of U.S. military vehicles, 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 cuts is looming high. Also, we have turned slightly cautious about the ongoing macro weakness. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

On January 25, 2012, the company is expected to release its fiscal 2011 results. The Zacks Consensus Estimates for fourth quarter 2011 and fiscal 2011 are currently at $1.99 per share and $7.24 per share, respectively.

Based 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. Some of its main competitors include The Boeing Company ( BA ) and Lockheed Martin Corporation ( LMT ).

BOEING CO ( BA ): Free Stock Analysis Report

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LOCKHEED MARTIN ( LMT ): Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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