General Dynamics Wins $101M Navy Deal For Missile Tubes

General Dynamics Corp.’s (NYSE:GD) subsidiary, Electric Boat Corp. clinched a modification contract worth $101.3 million from the U.S. Navy for the manufacture of 22 tactical missile tubes. Work is scheduled to be over by Dec 2024.

Details of the Deal

Per the terms of the contract, the tactical missile tubes will support the development of the Common Missile Compartment for the Navy's Ohio Replacement submarine and the UK’s Successor-class ballistic-missile submarine.

The contract was awarded by the Naval Sea Systems Command, Washington, DC. Work related to the deal will be executed in Quonset Point, RI. The contract will utilize UK Foreign Military Sales incremental funding and fiscal 2016 research, development, test as well as evaluation (Navy) funding.

The original five-year contract, awarded in Dec 2012 and valued at $1.85 billion, required Electric Boat to conduct research and development work for the Navy's next-generation ballistic-missile submarine. Construction for this submarine is scheduled to begin in 2021. The potential value of the overall contract is $2.5 billion.

Ohio Replacement Submarines & General Dynamics

The Ohio replacement program, currently known as the Columbia class 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 Ohio-class submarines are also operated by other nations like the UK, 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 (NYSE:HII) Newport New division. But the Navy has requested General Dynamics to continue being the prime contractor for designing and building the Columbia-class boats, with the company 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

Being one of the only two contractors in the world equipped to build nuclear-powered submarines, General Dynamics enjoys a dominant position over its peers as a Navy contractor. Besides, 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 strong budget allotted to the same, and General Dynamics being its prime contractor, the modification contract will undoubtedly render the company a leading position in the nuclear-powered submarine industry.

Zacks Rank & Other Stocks to Consider

General Dynamics currently carries a Zacks Rank #2 (Buy). A couple of other favorably placed stocks in the aerospace and defense sector include Engility Holdings, Inc. (NYSE:EGL) and AAR Corp. (NYSE:AIR) .

Engility and has witnessed a 3.55% rise in its stock price in the last trading session. This company’s current year consensus estimate improved 13.6% in the last 60 days. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AAR Corp. also carries a Zacks Rank #1. The company has witnessed a 10.96% increase in its share price yesterday. Its current year consensus estimate improved 5% in the last 30 days.

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