General Dynamics Corp.’s GD business unit, Electric Boat, recently clinched a modification contract to provide long lead time material for supporting the Virginia Class Block VI submarines. The award has been offered by the Naval Sea Systems Command, Washington, D.C. 

Valued at $349.8 million, the contract is expected to be completed by September 2035. A major portion of the work related to this deal will be carried out in Sunnyvale, CA. 

GD’s Prowess in Submarine Market

General Dynamics is a renowned manufacturer of submarines that play a crucial role in offering naval security to the U.S. sea borders. Notably, its Electric Boat business division has been supplying nuclear-powered Virginia-class fast-attack submarines to the U.S. Navy for 20 years, along with its industry partner, Huntington Ingalls HII. Moreover, Electric Boat is the prime contractor for the Columbia-class ballistic missile submarine program. 

Apart from producing the aforementioned submarines, Electric Boat performs submarine maintenance and modernization, engineering and design services, fleet support for all classes of submarines, and contributes to concept and technology development.

As far as the Virginia class submarines are concerned, these naval vessels excel in a wide range of warfighting missions and boast the capability to collect intelligence critical to irregular warfare efforts using advanced intelligence, surveillance and reconnaissance capabilities.

These features of the submarine help the U.S. Navy maintain its undersea superiority, which must have been ushering in solid order flows for General Dynamics. The latest contract win is a bright example of that.

What Lied Ahead for GD Stock?

With the evolving versatility of threat dynamics witnessed across the global map amid increasingly growing hostilities in different parts of the world, both developed and developing nations are significantly enhancing their defense capabilities to protect their borders from any unprecedented attack. This has also led to increasing spending on submarines, as efficient warships equipped with nuclear weapons add to military capabilities and deter potential nuclear attacks in sea warfare missions.

The growth of the submarine market is also being driven by advancements in technology, including the use of enhanced stealth capabilities, which make detection difficult. This must have prompted the Morder Intelligence firm to predict a CAGR of 7.6% for the global submarine market during 2024-2029. 

Such a growth trend offered by the global submarine market should benefit General Dynamics, with its Electric Boat segment responsible for all aspects of the design and engineering of U.S.-made submarines. This unit has maintained its dedication to delivering the most capable submarines in the world by emphasizing technical excellence, innovation and responsiveness to customer requirements for more than 125 years.

Opportunities for GD’s Peers

Other defense majors that are likely to gain from the expanding global submarine market have been discussed below:

Huntington Ingalls: Its Newport News (“NNS”) division is engaged in the construction, engineering, design, research and integrated planning of submarines. As of 2023-end, NNS had delivered 63 submarines to the U.S. Navy since 1960, including 49 fast attack and 14 ballistic missile submarines. Of the 49 nuclear-powered fast attack submarines currently in two active services, 23 were delivered by NNS.

The stock boasts a long-term earnings growth rate of 6.9%. The consensus estimate for HII’s 2024 sales reflects a 2.9% improvement from the prior-year quarter’s reported numbers. 

BAE Systems BAESY: Its Astute class submarines are the largest and most advanced attack submarines ever built for the Royal Navy. Equipped with world-leading sensors, the Astute class carries both Tomahawk Land Attack Cruise Missiles and Spearfish heavyweight torpedoes.

The stock boasts a long-term earnings growth rate of 12.4%. The consensus estimate for BAESY’s 2024 sales reflects a 37.4% improvement from the top line reported in 2023.

Northrop Grumman NOC: It is the premier provider of missile launch systems for naval submarines. Its sensors are fielded on Virginia-class submarines.

The stock boasts a long-term earnings growth rate of 8.7%. The consensus estimate for NOC’s 2024 sales reflects a 5.4% improvement from the prior-year quarter’s recorded actuals.

GD Stock’s Price Movement

In the past year, shares of General Dynamics have risen 24.3% compared with the industry’s 4.9% growth.

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GD’s 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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