General Dynamics (GD) Wins Virginia-Class Navy Submarine Deal

General Dynamics Corporation’s GD business unit, General Dynamics Electric Boat, won a modification contract from the U.S. Navy to provide support to Virginia-class attack submarines. The work related to the deal will be performed in Groton, CT, and Newport News, VA.

The contract is valued at $532.9 million and is expected to be completed by October 2023. Per the contract, General Dynamics Electric Boat will provide lead yard support and development studies and design efforts related to Virginia-class attack submarines.

What’s Favoring General Dynamics?

The changing dynamics of the military landscape and the rising geopolitical tension make it mandatory for a country to continuously evolve and strengthen its defense structure. The increased defense spending is mainly for upgrading and improvising defense systems with technologically advanced features. To this end, military submarines with enhanced undersea warfare capabilities form integral parts of any nation’s defense system.

Therefore, the increased focus on military submarines is likely to benefit General Dynamics as its Electric Boat business unit is a prime contractor of submarines. The unit has established standards of excellence in the design, construction and lifecycle support of submarines for the U.S. Navy.

In this regard, the business is responsible for all aspects of design and engineering and leads the construction of Virginia-class attack submarines. General Dynamics plans to invest $1.8 billion of capital in expanded and modernized facilities at Electric Boat to support growth in submarine construction.

Peer Moves

Nations are reinforcing their defense capabilities to deter any warfare-like situation. Per the report from Mordor Intelligence, the submarine market is projected to witness a CAGR of 4% between 2022 and 2031. Such abounding growth trends indicate ample growth opportunities for General Dynamics as it enjoys a lucrative position in the military submarine space.

A few defense primes that can reap the multitude of gains from the expanding submarine market are BAE Systems BAESY, Northrop Grumman NOC and Huntington Ingalls Industries HII.

BAE Systems’ Astute class submarines are the U.K.’s largest and most powerful attack submarines and can strike targets up to 621 miles from the coast with pinpoint accuracy.

The long-term earnings growth rate of BAESY is pegged at 9.3%. The Zacks Consensus Estimate for BAE Systems’ 2022 earnings indicates year-over-year growth of 9.4%.

Northrop Grumman designs, develops and produces communication systems, sensors, signal processing and electronic warfare systems to counter increasingly sophisticated sea-based threats. Northrop Grumman also provides launch systems for submarines. Its eject launch technology has powered more than 7,000 successful launches.

Northrop Grumman has a long-term earnings growth rate of 2.2%. NOC delivered an average earnings surprise of 3.9% in the last four quarters.

Huntington Ingalls has a teaming agreement with Electric Boat to build Virginia-class fast-attack nuclear submarines. Its division, Newport News, is participating in the design and construction of the Columbia-class (SSBN 826) submarine as a replacement for the current aging Ohio-class nuclear ballistic missile submarines.

The Zacks Consensus Estimate for HII’s 2022 earnings indicates year-over-year growth of 13.6%. Huntington Ingalls delivered an average earnings surprise of 12.4% in the last four quarters.

Zacks Rank & Price Performance

Currently, General Dynamics carries a Zacks Rank #3 (Hold). In the past three months, shares of GD have rallied 1% against the industry’s decline of 3.8%. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Image Source: Zacks Investment Research

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