The ordnance unit of General Dynamics Corporation (GD) has won a $ 32.5 million contract from the U.S. Army Contracting Command in Rock Island, Illinois, to supply 30mm ammunitions used extensively by the U.S. Air Force in Iraq and Afghanistan.
Under the contract, the unit of General Dynamics, General Dynamics Ordnance and Tactical Systems, will supply two types of cartridges, including the new PGU-13 D/B cartridges and the remanufacture of existing U.S. Air Force inventory of PGU-13 HEI cartridges.
The PGU-13 cartridges are high-explosive incendiary rounds fired from 30-millimeter guns. These cartridges are mostly used in air-to-ground combat and support Air Force’s A-10 Thunderbolt attack aircraft.
General Dynamics said this is the first production of the PGU-13 in over 20 years to replenish critical levels in the Air Force's inventory. The company said it will manufacture the new as well as the existing cartridge models at its facility in Marion, Illinois. It expects to complete the order by July 2012.
General Dynamics is the only U.S. manufacturer that can produce all three rounds in the 30mm x 173 ammunition category. Along with the PGU-13, the family consists of the PGU-14/B API and PGU-15/B TP that provide armor penetration and training capability, respectively, to the Air Force.
Last week, the U.S. Army Contracting Command in Rock Island had awarded a similar ammunition contract worth $ 49.9 million to General Dynamics' peer, Alliant Techsystems Inc. (ATK). Under the contract, Alliant will manufacture lightweight 30mm M789 high explosive dual purpose ammunition. These dual-purpose ammunitions are capable of hitting difficult targets by penetrating shields while also maintaining its ability to hit soft targets.
Based in Falls Church, Virginia, General Dynamics is one of the leading companies in business aviation, information systems and technologies, shipbuilding and marine systems, and land and amphibious combat systems, as well as armaments and munitions.
We view General Dynamics as a well-run company that is likely to continue delivering on expectations, driven by revenue growth, margin expansion and cash flow generation. However, an uncertain political landscape makes future defense budgets vulnerable to cutbacks. The falling order backlog is also a headwind for the company.
General Dynamics presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
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