General Dynamics Wins Navy Contract

General Dynamics Corp. (GD) received a contract, worth $64.1 million, from the U.S. Navy for the procurement of advance materials for the Mobile Landing Platform (MLP) 4 Afloat Forward Staging Base (AFSB) program. The work will be carried out primarily in Pennsylvania and Wisconsin.

The order includes purchasing ship sets with specifications supporting main diesel generator engines, integrated propulsion, integrated bridge, propeller and shafting, and voice communications. The contract will run through Mar 2017.

The MLP platform is a flexible semi-submersible modular ship offering large-scale logistics movements including transfer of vehicles and equipment from sea to shore. In the absence of port availability, these ships provide support, thereby reducing the Navy’s reliance on foreign ports. The first delivery of the MLP ship was made on May 2013.

The current sequestration cloud, which still hovers over the defense sector, has hit hard on programs like the MLP and the TAO(X) Oiler. Although the MLP ships will be retained by the government in its proposed future defense budget, investments in the project will likely be a low-key affair. The five-year plan (FY2015–FY2019) could see the Navy purchasing only one MLP/AFSB ship in 2017.

However, shrinking expenditures on these programs will have a minimal impact on General Dynamics’ future prospects. The growing military tension in the Asia-Pacific region has provoked the Department of Defense to prioritise the company’s prime shipbuilding programs in the proposed FY2015 Future Years Defense Program (FYDP).

For FY2015, the Navy plans to procure a total of seven ships, of which two will be the Virginia-class attack submarines, three Littoral Combat Ships and two Arleigh Burke-class destroyers. This speaks of General Dynamics’ constant focus on technological innovation that enabled the company to secure big-value contracts amidst the weak defense environment.

General Dynamics recently clinched a $2.8 billion order for building four Arleigh Burke-class destroyers including an option for a fifth. We believe the intermittent large contract wins will keep the company poised for a stable growth in the near term.

Currently, General Dynamics carries a Zacks Rank#3 (Hold). Some better-ranked defense stocks include Embraer SA (ERJ), Curtiss-Wright Corporation (CW) and Leidos Holdings, Inc. (LDOS). While Embraer carries a Zacks Rank #1 (Strong Buy), Curtiss-Wright Corp. and Leidos Holdings hold a Zacks Rank #2 (Buy).