Zacks_Analysts' Blog : General Dynamics in Navy Deal - Analyst Blog

NASSCO, a wholly owned subsidiary of General Dynamics Corporation (GD), received a contract worth $37 million from the U.S Navy for the fitting-out availability of the San Antonio-class amphibious assault dock ship, USS San Diego (“LPD 22”). If all the options are exercised, the total value of the contract would be approximately $134 million.

Per the contract, specific efforts to be taken up by the company for the USS San Diego include program management, planning, engineering, design, liaison, scheduling, labor and procurement of incidental material. Onboard repair efforts will include piping, structural and machinery work.

NASSCO is the prime contractor for all homeport repair work for San Diego-based amphibious assault (“LHA/LHD”) ships, dock landing ships (“LSDs”), amphibious transport ships (“LPDs”) and frigates (“FFGs”). 

In 2011, the shipyard conducted four dry-dockings, led eight major repair availabilities and participated in more than seven major availabilities.  This work includes major overhauls and upgrades to the USS Bonhomme Richard (“LHD 6”), USS Rushmore (“LSD 47”), USS Harper's Ferry (“LSD 49”), and USS Benfold (“DDG 65”).

NASSCO is also the Navy's prime contractor for design and construction of the 14-ship Lewis and Clark class of T-AKE dry cargo/ammunition ships, as well as 3 Mobile Landing Platform ships. Work under this contract will be performed at NASSCO beginning in May 2012 and is expected to be completed by December 2014.

San Antonio-class amphibious assault dock ship, built in Pascagoula, Mississippi, is 684-foot long. It completed builder's sea trials off the Gulf Coast on October 1, 2011.  Those tests evaluate the ship's defensive, communications, propulsion and other auxiliary systems.

General Dynamics’ revenue exposure is spread over a broad portfolio of products and services in business aviation; combat vehicles, weapons systems and munitions; shipbuilding design, repair and construction; and information systems, technologies and services.

Looking forward, key drivers for the company are reviving fortunes for the business jet market (Gulfstream), its stable business of U.S. military vehicles (Stryker combat vehicles and Abrams tanks), 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 large. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

The company expects to release its third quarter results on October 26, 2011. The Zacks Consensus Estimates for third quarter 2011 and fiscal year 2011 are currently at $1.77 per share and $7.20 per share, respectively. Its main competitors The Boeing Company (BA) and Lockheed Martin Corporation (LMT) are also expected to release their earnings results on October 26, 2011.

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.