General Dynamics Electric Boat, a wholly owned subsidiary of General Dynamics Corporation (GD), has received a contract worth $78 million from the U.S. Navy for supplying long lead-time material for the Virginia-class submarine SSN-792.
Long lead-time material includes Propulsion System, Ship Service Diesel Generators, Ship Service Transformers, Switchboards, Propeller Shaft and bearings, Navigation and Communication Electronic Systems, Trawl Winch System Propeller Shaft and bearings and many other such items.
To support the construction of SSN-792, the company will provide steam and electrical-plant components, the main propulsion unit and ship-service turbine generator set, as well as miscellaneous hull, mechanical and electrical-systems components to the U.S. Navy. The construction of the submarine is expected to begin in 2014.
The Virginia-class submarine program is a class of nuclear-powered fast attack submarines in service with the United States Navy. These submarines are designed for a broad spectrum of open-ocean and littoral missions. Moreover, they are less costly than Seawolf class attack submarines. Due to their technical excellence and schedule performance, they assist the Navy in dominating both the open ocean and the littorals.
In partnership with the Navy, Electric Boat has been successfully pursuing its goal to reduce ship costs while focusing on improvement in overall efficiency. In February 2012, Electric Boat had received a contract modification from the U.S. Navy to procure components for Virginia-class nuclear-powered attack submarines. Per the contract, the company had to procure material for the construction of Advanced Integrated Low Pressure Electrolyzers used on Virginia-class submarines.
General Dynamics’ revenue exposure in a number of uncorrelated markets helps in keeping the overall growth momentum steady. However, currently the company is largely tied to the U.S. defense budget, where the threat of budget cuts is high. Also, we have turned slightly cautious about the company’s steadily dropping order backlog and risks related to the execution of key projects.
The company presently retains a short-term Zacks #4 Rank (Sell). We have a long-term Neutral recommendation on the stock. In the near term, we would advise investors to accumulate its short-term Zacks #1 Rank (Strong Buy rating) peer Textron Inc. (TXT).
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