General Dynamics (GD) Unit Wins $911M Deal For DDG 51 Ships

General Dynamics Corp.’s (NYSE:GD) business unit, Bath Iron Works (“BIW”), recently secured a modification contract for manufacturing a DDG 51 class ship. Work related to the deal is scheduled to be over by May 2026.

Valued at $910.7 million, the contract was awarded by the Naval Sea Systems Command, Washington, D.C. Per the terms of the deal, BIW may also provide engineering change proposals, design budgeting requirements and post-delivery availabilities. If exercised, these options will take the cumulative value of the ship to $922 million.

Majority of the task will be executed in Bath, ME.

A Brief Note on DDG-51

The DDG 51 Arleigh Burke-class is a multi-mission warship. It features an advanced anti-submarine warfare system, the AEGIS combat system, the Vertical Launching System, two embarked SH-60 helicopters along with advanced anti-aircraft missiles and land-attack missiles. Impressively, the warship offers protection against a wide range of threats including ballistic missiles.

What’s Favoring General Dynamics?

General Dynamics has been serving the U.S. Navy, constructing and delivering next-generation combat-proven ships for decades. Being the Navy's primary surface combatant, the Aegis-equipped Arleigh Burke class (DDG 51) destroyers enjoy solid demand. Such steep demand places General Dynamics at an advantageous position in the shipbuilding business with the company being the lead designer and builder of DDG 51.

In third-quarter 2018, the company’s Marine Systems, which builds combat ships, witnessed 3.7% revenue growth on a year-over-year basis. We may expect the latest contract win to add an impetus to this segment’s growth in the coming quarters as well.

Furthermore, fiscal 2019 defense budget includes an investment plan of $179.1 billion for the U.S. Navy. Particularly, this investment comprises a $6-billion spending provision for procuring 3 DDG 51s compared with $4 billion allotted in the year-ago budget. Considering such favorable budgetary revisions, General Dynamics, a prominent shipbuilder in the United States, is expected to win similar contracts from the U.S. Navy in the coming days.

Price Movement

In a year’s time, shares of General Dynamics have lost 25.6%, wider than the industry’s 13% decline. This underperformance may have been caused by an intense competition that the company faces in the aerospace-defense space.

Zacks Rank & Other Stocks to Consider

Lockheed Martin (NYSE:LMT) currently carries a Zacks Rank #2 (Buy). A few other top-ranked companies in the same sector are Aerojet Rocketdyne Holdings (NYSE:AJRD) , Teledyne Technologies Incorporated (NYSE:TDY) and AeroVironment, Inc. (NASDAQ:AVAV) , each sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Aerojet Rocketdyne delivered average beat of 19.27% in the last four reported quarters. The Zacks Consensus Estimate for 2018 earnings has surged 43.3% to $1.82 in the past 90 days.

Teledyne Technologies came up with average earnings surprise of 12.92% in the trailing four reported quarters. The Zacks Consensus Estimate for current-year earnings has increased 6% to $8.75 in the past 90 days.

AeroVironment pulled off average positive surprise of 257.01% in the preceding four reported quarters. The Zacks Consensus Estimate for fiscal 2019 earnings has been revised 13.2% upward to $1.54 over the past 30 days.

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