General Dynamics' Unit Wins $21M Contract From U.S. Army

Defense behemoth, General Dynamics Corp.’s (NYSE:GD) business division, Ordnance and Tactical Systems, secured a modification contract worth $20.6 million, for supplying aircraft bombs. The deal has been awarded by the U.S. Army Contracting Command, Rock Island Arsenal, IL.

Details of the Deal

According to the deal, the company will provide 10,933 MK82-6 bomb bodies, 866 MK84-4 bomb bodies and 1,365 MK84-10 bomb bodies to support the Air Force, the Navy and the foreign military sales (FMS) requirements.

The modification covers FMS to Australia, Bahrain, and Saudi Arabia.

Work related to this deal is scheduled to be completed by Dec 31, 2018. It will be executed in Garland, TX, and will utilize fiscal 2015, 2016 and 2017 aircraft procurement (Army) funds.

A Brief Note on MK82 & MK84

The Gun and Guided Missile Director MK82, produced by Ordnance and Tactical Systems, is a component of the Group MK81. Currently, it is being produced for Lockheed Martin Corp.’s (NYSE:LMT) Aegis Weapon System MK7.

Markedly, the Antenna Assembly AS-34444/SPG-62 that is produced by Raytheon Co's (NYSE:RTN) Equipment Division is mounted on the MK82 by an elevation-over-train pedestal to provide space stabilization for the radar's line of site. The assembly is an unmanned system, which is capable of moving on two axes, train and elevation.

MK84 is a general purpose bomb and also the largest of the MK80 series of weapons. It is a free-fall, non-guided GP 2,000-pound bomb that is used in the majority of bombing operations where maximum blast and explosive effects are desired. These bombs are relatively light and approximately 45% of their total weight is explosive.

Our Take

General Dynamics’ Ordnance and Tactical Systems is the leading commercial disposer of explosive materials and devices in the United States. It is one of the leading manufacturers of mortar weapons and systems, bomb bodies and propellants. This unit falls under the General Dynamics Combat Systems segment.

As a whole, 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. It is the leading tank and artillery ammunition producer providing high-performance ammunition to the U.S. armed forces.

During the second quarter of 2017, the Combat Systems segment generated 9% year-over-year revenue growth. We can expect consistent growth in the segment's top line, going forward. The improvement is expected to be driven by strong demand for its products and frequent contract wins like the aforementioned ones.

Price Movement

Shares of General Dynamics have rallied 29.9% in the last year, underperforming the broader industry’s gain of 41.4%. This could be because the company derives a major portion of its revenues from government orders and any further budget cuts will hurt the company’s growth prospects.

Zacks Rank & Stock to Consider

General Dynamics currently carries a Zacks Rank #3 (Hold). A better-ranked stock in the same space include Leidos Holdings, Inc. (NYSE:LDOS) sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Leidos Holdings delivered an average positive earnings surprise of 18.01% in the last four quarters. The Zacks Consensus Estimate for current-year earnings moved up 1.1% in the last 30 days.

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