General Dynamics to Build Navy Subs for $17.6B - Analyst Blog

A General Dynamics Corporation GD unit Electric Boat received a contract to build 10 additional Virginia class submarines for the U.S. Navy.  Per the $17.6 billion contract, the company will deliver two submarines per year over five years.

Construction work will begin from May 1, and to fulfill this contract Electric Boat will partner with Newport News Shipbuilding, a unit of Huntington Ingalls Industries HII.

The Virginia-class sub, also known as the SSN-774-class, is a class of nuclear-powered fast attack submarines in service with the U.S. Navy. Virginia class submarines can operate efficiently in littoral and open-ocean environments, gather critical information, and can coordinate with land, air, sea and space-based defense assets, which are essential for national security interests.

Electric Boat, along with its partner, has already supplied 10 Virginia class submarines to the U.S. Navy while another eight submarines are presently in various stages of construction. The addition of the new ships will help the U.S. Navy to maintain and enhance its undersea capabilities. For the General Dynamics unit, the new order will bring in more economies of scale.

This large contract is no doubt a welcome sign for General Dynamics amid an austere U.S. defense budget environment. General Dynamics' proficiency in building ships allows it to win defense deals at regular intervals. In Mar 2014, Bath Iron Works, a unit of General Dynamics, received a $643 million contract from the U.S. Navy to construct an additional Arleigh Burke-class destroyer.

General Dynamics holding a Zacks Rank #3 (Hold) has performed consistently over the past few quarters. The company was able to surpass the Zacks Consensus Estimate in the last four quarters with an average beat of 6.68%.

Some better-ranked stocks in the aerospace and defense industry include The Boeing Company BA and Lockheed Martin Corp. LMT. Both the stocks hold a Zacks Rank #2 (Buy).