Electric Boat, a wholly owned subsidiary of General Dynamics Corporation (GD), received a $32.9 million contract from the U.S. Navy to supply three backup photonics masts for Virginia-class submarines.
The Virginia class is a class of nuclear-powered fast attack submarines in service with the United States Navy. The submarines are designed for a broad spectrum of open-ocean and littoral missions. In Virginia-class submarines, traditional periscopes are replaced by photonics masts. These photonics masts do not penetrate into the submarines’ hull nor does it physically extend into its control room.
Each photonics mast has a digital color camera, an infrared camera and a laser rangefinder. With the help of photonics masts, information is digitally recorded by cameras, transmitted through fiber optics into the ship and processed with on-board image processors.
Recently, the company received a sizeable contract from the U.S. Navy worth $1.8 billion for the construction of DDG 1001 and DDG 1002. The two ships, DDG 1001 and DDG 1002, under the Zumwalt-class program, are expected to be delivered in December 2015 and February 2018, respectively.
General Dynamics continues to benefit from strong congressional support for its programs in the 2011–12 defense budgets. Going forward, the company’s focus will be on revival in the business jet market along with programs such as the Warfighter Information Network – Tactical (WIN-T) program and Common Hardware/Software III (CHS-3) program. Key drivers include the reviving fortunes of the business jet market (Gulfstream), its stable business of U.S. military vehicles, an ongoing share repurchase program and strong cash flow generation.
However, the company is largely tied to the U.S. defense budget, where the threat of budget cuts is looming high. Also, we have turned slightly cautious about the company’s steadily dropping order backlog, as well as the recent G650 crash and risks related to the execution of key projects. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
On October 26, 2011, the company is expected to release its third quarter results. The Zacks Consensus Estimate for third quarter and fiscal year 2011 are $1.77 and $7.20, respectively.
Headquartered 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. Some of its main competitors include The Boeing Company (BA) and Textron Inc. (TXT).
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