General Dynamics (GD) Unit Wins $59M U.S. Navy Contract

General Dynamics Corporation’s (NYSE:GD) business unit, Bath Iron Works (“BIW”) has won a modification contract from the U.S. Navy to provide lead yard services for DDG 51 class ships.

Contract Details

The latest contract is worth $59.4 million but it will have a cumulative value of $73.7 million if all options are exercised. The contract was awarded by the Naval Sea Systems Command, Washington, D.C.

Per the contract, BIW will provide engineering and technical assistance for the construction of the new DDG 51 class ships. Lead yard services include liaison for follow ship construction, general class services, class logistic services, class design agent services, continuation of the DDG 51 Class Flight III upgrade design efforts, and class change design services for follow ships.

Work is scheduled to be complete by Dec 2017. The majority of the work will be performed in Bath, ME, while the rest will be performed in Tampa, FL; Greenwood Village, CO; Waltham, MA; and Woburn, MA. It will use fiscal 2012, 2015, and 2016, shipbuilding and conversion (Navy) funds.

About the DDG 51 Class Ships

DDG 51 Arleigh Burke-class features an advanced anti-submarine warfare system, the AEGIS combat system, the Vertical Launching System, two embarked SH-60 helicopters, advanced anti-aircraft missiles, and the Tomahawk anti-ship and land-attack missiles. These features make the destroyer a powerful surface combatant when positioned in sea. In addition, the DDG 51 multi-mission guided missile destroyers offer a whole range of anti-surface, anti-submarine and anti-air capacities to carrier battle groups, surface action groups, amphibious groups and replenishment groups.

Why General Dynamics?

We note that 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. The company’s revenues are derived from a broad portfolio of products and services that help to keep the overall growth momentum steady.

Persistently robust demand for the DDG 51 class destroyers from the U.S. Navy has been the primary growth catalyst for General Dynamics as it is one of the only two contractors in the world, the other being Huntington Ingalls Industries, Inc. (NYSE:HII) . This also implies that General Dynamics faces stiff competition from Huntington Ingalls.

Price Movement

General Dynamics’s stock has improved about 25.7% in the last one year, outperforming the Zacks categorized Aerospace/Defense industry’s gain of 12.2%. This could be because General Dynamics maintains a strategic alliance with the U.S. DoD and tries to meet commitments in terms of maintaining product and service standards, along with delivery timing.

Zacks Rank & Other 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. (NYSE:EGL) and Northrop Grumman Corp. (NYSE:NOC) .

On an average, Engility has delivered a positive earnings surprise of 23.19% in the trailing four quarters. The company’s 2016 earnings estimates increased 13.4% over the last 60 days. Engility sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Northrop Grumman, another Zacks Rank #1 stock, delivered a positive earnings surprise of 8.29% in the trailing four quarters. The company’s 2016 earnings estimates inched up 0.1% in the last 30 days.

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