General Dynamics Corp.’s GD business unit, Bath Iron Works, recently clinched a modification contract that enables the company to exercise options for providing lead yard support to the DDG 51 warships. The award has been offered by the Naval Sea Systems Command, Washington, D.C.
Valued at $82.3 million, this contract is expected to be completed by November 2025. The majority of work related to this deal will be carried out in Bath/Brunswick, ME.
Rising Demand for Warships Benefits GD Stock
Heightened geopolitical tensions worldwide and the resultant need for enhanced maritime security are prompting countries to invest heavily in navy ships designed for modern sea warfare. This increased focus on naval strength ensures readiness against evolving threats while also emphasizing the importance of ship maintenance, modernization and lifecycle support.
The consequent rise in demand for warships and associated yard support services has been benefiting combat shipbuilders like General Dynamics, which received solid contract inflows for its combat-proven warships. The latest contract win is a bright example of that.
Its Bath Iron Works business unit builds the DDG-51 Arleigh Burke-class guided-missile destroyer warships, which witness significant demand owing to their wide range of advanced warfighting capabilities in multi-threat air, surface and subsurface environments.
The strong demand enjoyed by these warships is further evident from the fact that in 2023, the company won a contract from the Navy for the construction of three Flight III DDG-51 destroyers, with a total of 12 ships in backlog (scheduled for delivery through 2032).
Successful delivery of these ships and completion of yard support services associated with them should bolster GD’s revenue growth in the coming years.
What Lies Ahead for GD Stock?
The rising demand for efficient naval security systems is steadily driving growth in the naval ship market, with the Mordor Intelligence firm projecting a 6.5% CAGR for the global naval combat vessels market from 2024 to 2029.
This growth presents a significant revenue generation prospect for General Dynamics, a leading contractor for navy ships. Notably, its Marine Systems segment excels in designing and building surface combatant and auxiliary ships for the U.S. Navy, while also offering modernization and lifecycle extension services. Its unparalleled marine engineering expertise ensures the development of advanced naval capabilities.
Such proficiency positions GD to secure more contracts like the latest one, as demand for naval combat vessels rises, improving its order backlog and operational results.
Peer Opportunities
GD apart, other defense majors poised to benefit from the expanding naval combat vessels market, on virtue of their strong presence in this space, are discussed below:
BAE Systems BAESY: It designs, builds, commissions, repairs and supports a full range of complex naval ships, from offshore patrol vessels to aircraft carriers. Its Queen Elizabeth Class Aircraft Carriers are the largest warships ever constructed in the United Kingdom.
BAESY boasts a long-term earnings growth rate of 12.4%. The Zacks Consensus Estimate for BAE Systems’ 2024 sales indicates growth of 37.7% from the 2023 level.
Lockheed Martin LMT: The company manufactures Littoral Combat Ships (“LCS”). Its freedom-variant LCS, USS Nantucket (LCS 27), is a resilient, flexible warship designed to serve the evolving missions of the U.S. Navy.
Lockheed’s long-term earnings growth rate is 4.5%. The Zacks Consensus Estimate for LMT’s 2024 sales implies an improvement of 5.4% from the 2023 figure.
Huntington Ingalls Industries HII: Its business segment designs and constructs non-nuclear ships for the U.S. Navy and the U.S. Coast Guard, including amphibious assault ships, expeditionary warfare ships, surface combatants and national security cutters.
Huntington’s long-term earnings growth rate is 7.4%. The Zacks Consensus Estimate for HII’s 2024 sales indicates an increase of 1.2% from the year-earlier level.
Price Performance
Shares of General Dynamics have risen 15.2% in the past year against the industry’s 1.9% decline.
Image Source: Zacks Investment Research
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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