General Dynamics Electric Boat, a wholly owned subsidiary of General Dynamics Corporation (GD), was awarded a $1.2 billion contract from the U.S Navy for the construction of the 14th Virginia-class submarine, SSN-787.
The fund provided by the U.S. Navy will help General Dynamics to procure long lead-time components that will support the planned official construction of the submarine in late 2011 at Electric Boat and at its teammate, Huntington Ingalls Industries (HII) in Newport News, Virginia.
General Dynamics is now permitted by the Connecticut, Rhode Island and Virginia congressional delegations to produce two submarines per year on the Virginia-class program.
The Virginia class is the first U.S. Navy warship designed for the full range of mission requirements in the post-Cold War era. Virginia-class submarines displace 7,800 tons, with a hull length of 377 feet and a diameter of 34 feet. They are capable of speeds in excess of 25 knots, can dive to a depth greater than 800 feet, and attack missiles and unmanned underwater vehicles.
Overall, these submarines play an important role in the nation’s defense with their stealth, firepower and unlimited endurance and are fully optimized for maximum technological and operational flexibility.
The contract to build SSN-787 was awarded to the Electric Boat division of General Dynamics in Groton, Connecticut on December 22, 2008. In 1991, the Navy had ordered two submarines, the USS Connecticut (SSN 22) and USS Louisiana (SSBN 743), to Electric Boat, the General Dynamics unit that has a long history of building submarines for the U.S. Navy.
Looking forward, key drivers for General Dynamics include reviving fortunes for the business jet market, its stable business of U.S. military vehicles, its backlog, an ongoing share repurchase program and strong cash flow generation.
However, the potential for large defense program cuts, a slowdown or decline in the overall defense budget, Iraq troop withdrawals, and increasing reliance on less predictable international defense business will likely pose fundamental headwinds for the stock.
In April, General Dynamics announced its first-quarter 2011 earnings from continuing operations of $1.64 per share, surpassing the Zacks Consensus Estimate of $1.61. General Dynamics generated total revenues of $7.8 billion in the quarter, marginally below the Zacks Consensus Estimate of $7.9 billion. The company ended the first quarter 2011 with a total backlog of $57.6 billion, down from $63.9 billion in the year-ago quarter.
In April again, one of the competitors of General Dynamics, Raytheon Company (RTN), reported first-quarter 2011 adjusted earnings of $1.38 per share, beating the Zacks Consensus Estimate of $1.09. Results jumped 10% from earnings of $1.25 per share reported in the year-ago period.
The shares of General Dynamics retain a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
Based in Falls Church, Virginia, 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.
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