General Dynamics (GD) Clinches $35M Modification Contract

General Dynamics Corp.’s (NYSE:GD) Mission Systems business unit recently secured a $35.03 million contract for modification P00001 to a previously awarded cost-plus-incentive-fee, cost-plus-fixed-fee contract (N00030-19-C-0003). The contract was awarded by Strategic Systems Programs, Washington, District of Columbia.

Per the terms of the deal, Mission Systems Unit will provide modification P00001 for research and development plus sustainment efforts for the U.S. SSBN Fire Control Sub-system (FCS), the U.K. FCS and the U.S. SSGN Attack Weapon Control System including training and support equipment and U.S. / UK Shipboard data system.

The company will carry out the work in Pittsfield, MA (98%); Kings Bay, GA (1%); and Dahlgren, VA (1%). The company expects to complete the work by September 2019.

The company’s Mission Systems division registered $1.2 billion of sales in the third quarter of 2018, reflecting 13.3% year-over-year growth. We expect General Dynamics to witness similar strong results in this segment in the upcoming quarters as well, buoyed by solid demand, eventually leading to a contract win like the latest one. This, in turn, should expand the company’s profit margin.

Factors Driving General Dynamics

General Dynamics boasts a strong position in the U.S. defense space and overseas. Notably, the fiscal 2019 defense budget worth $716 billion got U.S. Senate’s approval by the end of June, which included a budget request of $194.1 billion for the U.S. Navy, including $15 billion for Overseas Contingency Operations.

Being one of the only two contractors in the world equipped to build nuclear-powered submarines and a prime U.S. shipbuilder, General Dynamics should certainly benefit from this increased budget proposal.

With respect to product development, General Dynamics received type certification from the U.S. Federal Aviation Administration (FAA) for its G500 aircraft in July 2018. Meanwhile, the company anticipated FAA type certification for its G600 aircraft later this year, which is expected to enter service in 2019. We believe, these new jets will be significant revenue-drivers and accretive to the company’s earnings, once becoming available to global customers full-fledged.

Price Movement

General Dynamics’s stock has lost 14% in the past twelve months, compared with its industry’s decline of 2.4%.

Zacks Rank & Stocks to Consider

General Dynamics currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same sector are Aerojet Rocketdyne Holdings (NYSE:AJRD) , Engility Holdings (NYSE:EGL) and Lockheed Martin Corp. (NYSE:LMT) .

While Aerojet Rocketdyne Holdings sports a Zacks Rank #1 (Strong Buy), Engility Holdings and Lockheed Martin carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Aerojet Rocketdyne came up with average positive surprise of 19.27% in the last four reported quarters. The Zacks Consensus Estimate for 2018 earnings has been revised 43.3% upward to $1.82 in the last 60 days.

Engility Holdings delivered average earnings surprise of 19.98% in the trailing four reported quarters. The Zacks Consensus Estimate for current-year earnings has risen 4% to $2.10 in the last 60 days.

Lockheed Martin came up with average beat of 13.92% in the previous four reported quarters. The Zacks Consensus Estimate for 2018 earnings has moved 3.1% north to $17.51 in the last 60 days.

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