General Dynamics Wins $46M Deal For Submarine Maintenance

General Dynamics Corp.’s (NYSE:GD) Electric Boat division recently secured a $45.9-million contract for the New England Maintenance Manpower Initiative. Per the terms of the deal, the company will carry out non-nuclear maintenance of submarines based at Naval Submarine Support Facility in New London, CT. The deal has been awarded by The Naval Sea Systems Command, Washington, D.C.

Details of the Deal

Per the contract, Electric Boat will provide non-nuclear repair services to support submarine overhauls, maintenance, repair, modernization upgrades, ship alterations, temporary modifications and field changes. In addition, it will deliver supplies, ancillary, corrective and preventative maintenance services.

Work is scheduled to be over by December 2022 and will be executed in Groton, CT. Fiscal 2018 operations and maintenance funds will be used to partially finance work under the contract. Notably, the cumulative value of the contract may go up to $240 million, if the options included in it are exercised.

Defense Scenario

The defense industry got a heavy boost from the approval of fiscal 2018 defense policy bill worth $700 billion by the U.S. Senate in September. This bill provides about $640 billion for Pentagon’s main operations like buying weapons and paying the troops. The remaining $60 billion proposed for Overseas Contingency Operations will be utilized to fund the military operations in Afghanistan, Iraq, Syria and other terror afflicted region.

This raised defense budget is certainly expected to rake in more orders for major defense contractors such as General Dynamics, Northrop Grumman Corporation (NYSE:NOC) , Lockheed Martin Corporation (NYSE:LMT) and The Boeing Company (NYSE:BA) that are dealing with different verticals of the U.S. Defense.

Our View

General Dynamics, being one of the only two contractors in the world equipped to build nuclear-powered submarines, enjoys a dominant position as a Navy contractor. Nations are strategically strengthening their arsenal and naval power through upgrading submarines as widespread geo-political tensions loom large.

Notably, the U.S. Navy recently acknowledged nuclear submarines as its top priority. On top of that, a budget of $6 billion has been allotted for boosting Navy shipbuilding, under the recently- passed fiscal 2018 defense bill. This should help General Dynamics clinch more contracts and strengthen its position in the nuclear-powered submarine industry.

Price Movement

Shares of General Dynamics have rallied 15.7% year to date, underperforming the industry’s gain of 34.3%. The underperformance may have been caused by the earlier budget cuts by the prior U.S. government.

Zacks Rank

General Dynamics 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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