General Dynamics Wins $203M Contract for DDG 51 Combat Ships

General Dynamics Corp.'s GD business unit, Bath Iron Works, recently clinched a contract to provide planning yard services for its DDG 51 guided-missile destroyer ships. The award has been offered by the Naval Sea Systems Command, Washington, D.C.

Details of the Deal

Valued at $202.7 million, the contract is expected to be completed by Jul 31, 2029. Work related to this deal will be carried out in Bath, ME.

The options included in this contract, on being exercised, should bring the cumulative value of this contract to $1.13 billion.

What's Favoring General Dynamics?

Nations across the globe are fortifying their defense spending on military weapons and arsenals as they look to strengthen their defense capabilities. This also includes augmented spending on navy ships for enhanced sea warfare capabilities.

Such increased spending tends to benefit General Dynamics, with its Bath Iron Works business unit being an expert in manufacturing navy ships and providing modernization and lifecycle support for the U.S. Navy.

Notably, General Dynamics' DDG-51 Arleigh Burke-class guided-missile destroyers witness significant demand owing to their wide range of advanced warfighting capabilities in multi-threat air, surface and subsurface environments. These also offer protection against a wide range of threats, including ballistic missiles. Their strong demand is evident from the fact that in 2023, the company won a contract from the Navy for the construction of three Flight III DDG-51 destroyers, with a total of 12 ships in backlog (scheduled for delivery through 2032).

Such strong demand, in tandem with excellence in providing unique capabilities in shipbuilding, must have been boosting GD's order flows, like the latest one.

Growth Prospects

As demand for an efficient security system that can strengthen naval sea warfare capabilities rises, so does the prospect of the naval ship market. This must have encouraged the Mordor Intelligence firm to project that the global naval combat vessels market will witness a CAGR of 6.5% during the 2024-2029 period.

This growth opportunity should boost General Dynamics' operating results as it is one of the prime contractors of navy ships. Notably, GD's Marine Systems segment is the leading designer and builder of surface combatant and auxiliary ships for the U.S. Navy. The segment also provides comprehensive post-delivery services to modernize and extend the service life of Navy ships. It also maintains the most sophisticated marine engineering expertise in the world to support future capabilities.

Such expertise of GD in manufacturing, as well as providing valuable services for naval combat ships, should usher in more order flows for the company, backed by the growing demand in the naval combat vessels market, like the latest one. Such contract wins should boost GD's revenue generation prospects in the coming years.

Peer Opportunities

GD apart, other defense majors poised to benefit from the expanding naval combat vessels market, on virtue of their strong presence in this space, are discussed below:

BAE Systems BAESY: It designs, builds, commissions, repairs and supports a full range of complex naval ships, from offshore patrol vessels to aircraft carriers. Its Queen Elizabeth Class Aircraft Carriers are the largest warships ever constructed in the United Kingdom.

BAESY boasts a long-term earnings growth rate of 12.2%. The Zacks Consensus Estimate for BAE Systems' 2024 sales indicates growth of 34.1% from the 2023 level.

Lockheed Martin LMT: The company manufactures Littoral Combat Ships (LCS). Its freedom-variant LCS, USS Nantucket (LCS 27), is a resilient, flexible warship designed to encounter the evolving missions of the U.S. Navy.

Lockheed's long-term earnings growth rate is 4.1%. The Zacks Consensus Estimate for LMT's 2024 sales implies an improvement of 3.2% from the 2023 figure.

Huntington Ingalls Industries HII: Its business segment designs and constructs non-nuclear ships for the U.S. Navy and the U.S. Coast Guard, including amphibious assault ships, expeditionary warfare ships, surface combatants and national security cutters.

Huntington's long-term earnings growth rate is 7.2%. The Zacks Consensus Estimate for HII's 2024 sales indicates an increase of 2% from the year-earlier level.

Price Performance

Shares of General Dynamics have risen 42.9% in the past year against the industry's 10.4% decline.

Image Source: Zacks Investment Research

Zacks Rank

General Dynamics currently carries a Zacks Rank #3 (Hold).

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