Zacks_Analysts' Blog : General Dynamics to Build DDG 115 - Analyst Blog

General Dynamics Bath Iron Works, a subsidiary of General Dynamics Corporation (GD), has received a $680 million contract from the U.S. Navy for the construction of DDG 115. DDG 115 is the third ship of the Navy's DDG 51-class (USS Arleigh Burke) guided-missile destroyer construction continuation program. The company expects to deliver DDG 115 in 2016.

The contract also includes a $665.0 million option for the company to build DDG 116. The contract to build DDG 114 was awarded to Huntington Ingalls Industries (HII), the erstwhile shipbuilding unit of General Dynamics, for $697.6 million. Huntington had also received the order to build DD 113 in June for $783.6 million.

The Arleigh Burke class of guided missile destroyers is the United States Navy's first class of destroyer built around the Aegis combat system and the SPY-1D multi-function phased array radar. DDG 51 multi-mission guided missile destroyers operate in support of carrier battle groups, surface action groups, amphibious groups and replenishment groups and provide a complete array of anti-submarine (ASW), anti-air (AAW) and anti-surface (SuW) capabilities.

The combination of the ships' AEGIS combat system, the Vertical Launching System, an advanced anti-submarine warfare system, two embarked SH-60 helicopters, advanced anti-aircraft missiles and Tomahawk anti-ship and land-attack missiles make the Arleigh Burke class the most powerful surface combatant ever put to sea.

Recently, Bath Iron Works received a sizeable contract from the U.S. Navy worth $1.8 billion for the construction of DDG 1001 and DDG 1002. The two ships DDG 1001 and DDG 1002, under the Zumwalt-class program, are expected to be delivered in December 2015 and February 2018, respectively. The first ship in this class was DDG-1000.

General Dynamics’ diversification of revenue through exposure to a number of uncorrelated markets will keep the overall growth momentum steady. Looking forward, key drivers include the reviving fortunes for the business jet market, its stable business of U.S. military vehicles (Stryker combat vehicles and Abrams tanks), an ongoing share repurchase program and strong cash flow generation.

However, the company is largely tied to the U.S. defense budget, where the threat of budget cuts is looming high. Also, we have turned slightly cautious about the recent G650 crash and risks related to the execution of key projects. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Headquartered in Falls Church, Virginia, 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. The company operates through four segments: Information Systems & Technology, Combat Systems, Marine Systems, and Aerospace.