General Dynamics' (GD) NASSCO Wins $465M Deal For CVN Carrier

General Dynamics Corp.’s (NYSE:GD) business subsidiary, National Steel and Shipbuilding Co. (NASSCO), recently secured a $465.2-million contract related to CVN aircraft carrier. The deal was awarded by the Naval Sea Systems Command, Washington, DC.

Details of the Deal

Per the deal, General Dynamics will provide repair, maintenance and modernization services, including non-nuclear boundary control efforts, to support the Puget Sound Naval Shipyard and Intermediate Maintenance Facility.

Work related to the deal will be performed in Bremerton, WA and is expected to get completed by March 2024. The company will utilize fiscal 2019 operations and maintenance (Navy) funds to finish the task.

A Brief Note on General Dynamics’ NASSCO

General Dynamics’ NASSCO has been designing and building ships since 1960. It focuses on designing and building supplementary and support ships for the U.S. Navy, and oil tankers and dry cargo carriers for the commercial markets. NASSCO also specializes in conducting full-service maintenance and surface-ship repair operations for the Navy’s global force.

Our View

Earlier this year, the company has already secured two substantial contracts. One of the contracts was related to the USS George H.W. Bush (CVN 77) super carrier ship, and the other to provide modernization and repair works for the USS Arleigh Burke DDG 51 ship. In 2018, the company delivered four of its Expeditionary Sea Base (ESB) auxiliary support ships and expects to deliver the fifth ship in 2019. Such consistent contract flow reflects solid demand growth for NASSCO served ships, thereby showcasing the subsidiary’s potential in generating revenues for General Dynamics.

Notably, the fiscal 2019 defense budget provisioned for shipbuilding investment worth $18.4 billion. With General Dynamics being a prominent shipbuilder in the United States, such budgetary developments should benefit its NASSCO unit.

Interestingly, per Technavio, the global naval shipbuilding market is expected to see a CAGR of 2% from 2019 to 2023. This, in turn, should increase demand for technical services required to upgrade different variants of ships, including aircraft carriers. NASSCO will most likely benefit from such favorable projections, going forward.

Price Performance

Shares of General Dynamics have plunged about 22.2% in a year compared with the industry’s growth of 1.8%.

Zacks Rank & Key Picks

General Dynamics currently carries Zacks Rank #3 (Hold). A few better-ranked stocks in the same sector are The Boeing Company (NYSE:BA) , Spirit Aerosystems Holdings (NYSE:SPR) and Heico Corporation (NYSE:HEI) .

While Boeing and Spirit Aerosystems sport a Zacks Rank #1 (Strong Buy), Heico carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boeing came up with average positive earnings surprise of 17.08% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has risen 11.3% to $20.13 in the past 90 days.

Spirit Aerosystems’ long-term growth estimates currently stand at 7.80%. The Zacks Consensus Estimate for 2019 earnings has risen 3.7% to $7.56 in the past 90 days.

Heico Corporation’s long-term growth estimates currently stand at 12.10%. The Zacks Consensus Estimate for 2019 earnings has risen 5.9% to $2.14 in the past 90 days.

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