General Dynamics (GD) Wins Deal to Support Abrams Tank System

General Dynamics Corporation’s GD business unit, Land Systems, recently clinched a modification contract to offer technical support to Abrams tank systems. The deal has been awarded by the U.S. Army Contracting Command, Detroit Arsenal, MI.

Valued at $29 million, the contract is expected to concludeby June 2023. The work related to the deal will be performed in Sterling Heights, MI.

What’s Favoring General Dynamics?

Amid the rising geopolitical tensions and the recent tiff between Russia and Ukraine, the United States andother countries globallyhave increased their spending manifold for upgrading defense systems and improving warfare capabilities. In this context, main battle tanks form an integral part of any nation’s defense system.

Hence, it is imperative to mention that General Dynamics’ Abrams battle tank enjoys significant demand from the U.S Army and several U.S. allies due to its advanced features and the company’s continuous efforts to configure it with additional advanced capabilities. GD received a $360-million contract from the Army for Abrams main battle tank upgrades, mission control units and systems technical support and another contract worth $305 million for the production of an M1A2 Abrams tank variant for an international customer in 2021.

The fiscal 2023 U.S. defense budget included an allotment of $700 million for Abrams battle tank modifications. Consequently, such budgetary provisions will aid General Dynamics in winning more contracts from Pentagon like the latest onein the days ahead. Thus, such contract wins are likely to boost the company’s profit margin.

Growth Prospects

Going forward, the demand for the main battle tank is likely to soar. Per a report from Mordor Intelligence, the main battle tank market is projected to witnessa CAGR of 3% during the 2020-2025 period. Such abounding growth trends indicate ample growth opportunities for General Dynamics as it enjoys a lucrative position in the main battle tank market.

Onedefense player whois likely to benefit from such favorable trends is BAE Systems BAESY.

BAE System’s Challenger 2 is heavily armoured and highly mobile, designed for use in the direct fire zone. Its primary role is to destroy or neutralize armour. It also has the ability to engage both hard and soft targets and can operate across a spectrum of high-intensity conflicts, counter insurgency and peacekeeping roles.

The long-term earnings growth rate of BAESY is pegged at 5.3%. The Zacks Consensus Estimate for 2022 earnings indicates a surge of 22.8% from the prior-year reported figure.

Price Performance

Shares of General Dynamics have rallied 18.9% in the past year against the industry’s decline of 40.9%.

Image Source: Zacks Investment Research

Zacks Rank & Stocks to Consider

General Dynamics currently carries a Zacks Rank #3 (Hold). Some better-ranked stocks from the same sector are Kratos Defense & Security Solutions. KTOS and Huntington Ingalls Industries, Inc. HII, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for Kratos’ 2023 earnings suggests growth of 41.8% from the prior year’s estimated figure. The Zacks Consensus Estimate for Kratos’ 2022 sales implies growth of 10.3% from the prior-year figure.

Kratos has a four-quarter earnings surprise of 87.70%. In the last reported quarter, KTOS delivered an earnings surprise of 300%.

The Zacks Consensus Estimate for Huntington Ingalls’ 2022 earnings suggests growth of 16.4% from the prior-year figure. Huntington Ingalls returned 10.5% to its investors in the past six months.

HII has a four-quarter earnings surprise of 12.14%. The Zacks Consensus Estimate for Huntington Ingalls’ 2022 sales implies growth of 13.9% from the prior-year figure.

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.