National Steel and Shipbuilding Co. (NASSCO), a unit of General Dynamics Corporation (GD), has received a contract modification from the U.S. Navy worth $104 million. Per the contract, the company will be responsible for the renovation and modernization of the dock landing ship USS Comstock (LSD 45).
NASSCO plans to carry out its task order under the Navy’s fiscal 2012 Extended Docking Phased Maintenance Availability fund. An Extended Docking Phased Maintenance Availability provides an extensive renovation and modernization of an LSD class ship, which includes alterations, repairs, inspection and testing of all ships systems and components to ensure safe operation of the ship.
In April 2012, the company had received a contract modification worth $68.9 million to renovate the USS Comstock. Later in May, the company started to perform onboard renovation and modernization activities. The task under the contract will be performed in San Diego and is expected to be completed by May 2013.
These contracts depict the company’s ship-repair capabilities. NASSCO is committed to deliver high-quality performance across the board, both in new construction as well as ship repair activities. Moreover, acquisition of ship-repair companies adds to this expertise. Recently, in August, the company completed the acquisition of the Ship Repair and Coatings Division of Earl Industries. Earl Industries is a leading East Coast ship-repair company that supports the U.S. Navy fleet in Norfolk, Virginia, and Mayport, Florida. This acquisition will undoubtedly improve the company’s ability to compete in the growing naval ship-repair market.
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. Going forward, key growth drivers of the company include improving business jet market, stable business of U.S. military vehicles, ongoing share repurchase program and strong cash flow generation.
However, we remain cautious as the company is largely tied to the U.S. defense budget, where the threat of budget cuts is looming. Also, risks related to the execution of key projects are matters of concern.
The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
In the current scenario, the company mainly competes with Huntington Ingalls Industries Inc. (HII) and Northrop Grumman Corporation (NOC).
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