General Dynamics Wins $147M Nuclear Submarine Contract

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Defense behemoth General Dynamics Corp. 's GD business division, Electric Boat, recently secured a modification contract worth $146.7 million from the U.S. Navy to increase the design support requirements of a previously awarded contract for Columbia-class nuclear submarine. Work related to this deal is scheduled to be completed by Sep 2017.

Details of the Deal

The contract was awarded by the Naval Sea Systems Command, Washington, D.C. Per the terms of the agreement, Electric Boat will provide design work for the Columbia-class submarine program, shipbuilder and vendor component and technology development, engineering integration, concept design studies, cost-reduction initiatives using a design for affordability process, and full scale prototype manufacturing and assembly.

Also, work for this contract will include engineering analysis, should-cost evaluations as well as technology development and integration efforts. The company will utilize fiscal 2017 research, development, test and evaluation funds to complete this deal. Most of the work will be carried out in Groton, CT.

A Brief Note on Columbia-class submarine

The Columbia-class submarine program, formerly known as the Ohio replacement submarine program, was designed by the Navy to replace its existing force of 14 Trident-armed Ohio-class ballistic missile submarines with a new class of 12 ballistic missile submarines (SSBNs). Originally built by Electric Corp., the Columbia-class submarines are also operated by the U.K., Russia, China, France and India.

Under the Navy's Submarine Unified Build Strategy (SUBS), the Columbia-class submarines will be jointly constructed by General Dynamics' Electric Boat and Huntington Ingalls Industries Inc.'s HII Newport New division. However, the Navy has requested General Dynamics to continue as the prime contractor for designing and building the Columbia-class boats. In fact, the company has been performing 77-78% of the shipyard work.

Currently, the Navy's proposed fiscal 2017 budget requests $773.1 million in advance procurement (AP) funding and $1,091.1 million in research and development funding for the Columbia-class program.

Our View

As one of the only two contractors in the world equipped to build nuclear-powered submarines, General Dynamics enjoys a dominant position as a Navy contractor. This apart, the company continues to be a prime contractor for the development of Virginia-class submarines (another class of nuclear-powered submarine), with Huntington acting as the subcontractor.

Given the Navy's recent acknowledgement of the Columbia-class program as its top priority, the huge budget allotted to the same, and General Dynamics being as the prime contractor, the modification contract will undoubtedly render the company a leading position in the nuclear-powered submarine industry.

Moreover, General Dynamics gained 24.8% over the past one year, outperforming the Zacks categorized Aerospace-Defense industry's gain of 11%. This could be because General Dynamics consistently maintains a strategic alliance with the U.S. Department of Defense, which allows it to enjoy a steady flow of contracts. This is line with the industry-beating performance of companies in the same space like Lockheed Martin Corp. LMT and Northrop Grumman Corp. NOC .

Zacks Rank

General Dynamics currently carries a Zacks Rank #3 (Hold). You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here .

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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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