General Dynamics Wins $36.3M Modification Deal From US Navy

General Dynamics Corporation (NYSE:GD) announced that it has been awarded a modification contract from the U.S. Navy. The said contract is valued at $36.3 million.

Per the terms of the contract, the company is expected to provide planned maintenance, facilities maintenance and administrative and engineering support services to the Navy. The mentioned amount for the contract will be obligated at the time of the award. Work related to the contract will be carried out at San Diego, CA. General Dynamics expects to complete contracted work by April 2018.

Regular Order Inflow

General Dynamics’ diverse portfolio of products and services aid it in securing regular contracts from various vertical of the U.S. Defense. The company is one of the two contractors in the world equipped to build nuclear-powered submarines, the other one being Huntington Ingalls Inc. (NYSE:HII) . This positions General Dynamics at a strategic advantage. Additionally, the recent budgetary amendments in the country have been in favor of the company’s business line.

Earlier in August, General Dynamics’ business unit, Land Systems, secured a contract from the U.S. Army to design, develop and integrate several engineering changes into the Abrams M1A2 SEP V3. (Read More: General Dynamics' Unit Wins $311M U.S. Army Contract)

The company’s business division, Electric Boat, was also awarded a $115.3-million modification contract to offer additional lead-yard services, development studies and design efforts in support of the Virginia-class submarines from the U.S. Navy. (Read More: General Dynamics Wins $115M Virginia-class Submarine Deal)

General Dynamics is committed to R&D activities that facilitate the introduction of new products and first-to-market enhancements. It broadens customer choices, improves aircraft performance and sets new standards for customer safety, comfort and in-flight productivity. The company has been increasing R&D expenditures over the past three years. Notably, company-sponsored R&D expense increased 5.8% year over year to $418 million in 2016.

The Defense Scenario

There are multiple reasons which have boosted the defense sector in the recent times. Firstly, terror activities are constantly rising across the globe. United States and its allies are on high alert anticipating major threats and have been taking extra effort to strengthen their defense system.

Secondly, the tension between the United States and North Korea is increasing. The conflict between these two countries has given a good boost to the major defense stocks like Lockheed Martin Corp. (NYSE:LMT) , Boeing Co. (NYSE:BA) , General Dynamics, Huntington Ingalls and others. The proposed 10% hike in the 2018 defense budget by President Trump is expected to rake in new orders to these giants.

Price Movement

Shares of General Dynamics have returned 29.3%, underperforming the industry’s gain of 32.2% in the last year.

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

General Dynamics currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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