General Dynamics Corporation’s GD business unit, General Dynamics Electric Boat Corp., has won two contracts from U.S. Navy, worth a total $729.6 million. Contracting activity for both the contracts is the Naval Sea System Command, Washington, DC.
The first one is a modification contract, worth $329.6 million, to continue acting as a design agent, planning yard, and rendering engineering and technical support for active nuclear submarines.
Under the second contract, worth $400.0 million, General Dynamics will provide repair work for in-service nuclear-powered submarines, special mission submersibles, moored training ships and submarine support facilities. The company’s services will include overhaul, maintenance, repair, modernization upgrades, technical engineering support, supplies and services, and nuclear-related touch labor support efforts.
Importance of Nuclear Submarines
A nuclear submarine is a submarine employing a nuclear reactor. These submarines are designed for a broad spectrum of open-ocean and littoral missions.These reactors use highly enriched fuel, which allows them to carry a huge amount of power from a smaller reactor and operate for a longer duration between refueling.
To keep the submarines ready for mission, repairs and upgradation of the existing systems is quite essential. The contracts awarded to Electric Boat will help to keep the submarines ready for action.
Why Electric Boat?
Electric Boat is a nuclear-capable shipyard, which possesses the skill, knowledge and experience to execute submarine repair efforts for in-service nuclear-powered submarines, special mission submersibles, moored training ships and submarine support facilities. The segment is the leading provider of construction and maintenance services for the U.S. strategic nuclear missile-carrying and attack-submarine fleet.
Moreover, the Navy has announced its $100 billion Ohio replacement program, wherein Electric Boat, serving as the prime contractor, will be responsible for about 80% of the construction of new submarines. This contract will likely generate significant revenue growth by the end of the decade.
In August, Electric Boat secured a contract worth $300.6 million to provide Lead Yard Services, and development studies and design efforts for the Virginia Class submarines
About the Company
We note that General Dynamics’ revenues are derived from a broad portfolio of products and services that help to keep its overall growth momentum steady. It is one of the only two contractors in the world equipped to build nuclear-powered submarines, the other being Huntington Ingalls Industries, Inc. HII.
General Dynamics enjoys a steady flow of contracts from the U.S. Department of Defense. In 2015, 57% of its revenues constituted contracts awarded by the U.S. government.
Recently, its unit, General Dynamics Mission Systems, received a $15 million contract from The Air Force Research Laboratory (AFRL) to prepare and demonstrate a software prototype that correlates geospatial intelligence, signals intelligence and cyber indicator, and warning data streams for intelligence analysts. (Read more: General Dynamics' Unit Gets $15M Air Force Contract)
Zacks Rank & Key Picks
General Dynamics currently has a Zacks Rank #2 (Buy). A couple of other favorably placed stocks in the aerospace and defense space are Engility Holdings, Inc. EGL and Leidos Holdings, Inc. LDOS. While Engility Holdings sports a Zacks Rank #1 (Strong Buy), Leidos carries the same rank as General Dynamics. You can see the complete list of today’s Zacks #1 Rank stocks here.
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