General Dynamics Corporation’s GD business unit, Electric Boat, recently clinched a contract worth $217 million to provide critical materials and components for constructing two Virginia-class submarines. The two submarines are SSN 814 and SSN 815.
Importance of Virginia-Class Submarines
The Virginia-class submarine is one of the most advanced nuclear-powered missile fast-attack submarines, serving the U.S. Navy. It excels in littoral and open-ocean missions and collects intelligence critical to the full spectrum of warfare.
Notably, GD’s Electric Boat is the prime contractor and lead design yard for the Virginia-Class submarine program. The company is currently working on Blocks IV and V in the program, with 17 Virginia-class submarines in its backlog scheduled for delivery through 2032. The U.S. Navy procures these submarines in multi-boat blocks at a two-per-year rate.
This reflects the strong demand that the Viginia-Class submarine program enjoys in the marine warfare space, which results in solid order inflow from the Pentagon, like the latest one. Such orders should bolster GD’s future revenue generation prospects.
GD’s Prospects in Submarine Market
Increasing geopolitical tensions across the globe and maritime disputes are anticipated to drive investments in submarines, which are considered one of the most critical elements of a country’s naval force.
The global submarine market is valued at $30.0 billion in 2023 and is expected to achieve a compound annual growth rate of more than 4% during 2023-2033, as predicted by GlobalData’s report. During this period, the market is expected to be dominated by the nuclear-powered attack submarine segment (SSN).
Such solid growth projections should boost GD’s top-line performance in the coming days, with its Marine Systems unit being one of the leading designers and builders of nuclear-powered submarines.
In recent times, the company has been offered multiple submarine contracts from the U.S. Navy. In October 2023, GD won a $967 million contract modification for Lead Yard Support and Development and Design efforts for Virginia-class submarines. In the previous month, it received a $517.2 million delivery order to procure and deliver initial Virginia-class attack submarine spare parts to support maintenance availabilities.
What About Other Defense Majors?
The growth prospects of the global submarine market are solid for other defense primes like BAE Systems BAESY, Northrop Grumman NOC and Huntington Ingalls Industries HII.
BAE Systems’ Astute class submarines are the U.K.’s largest and most powerful attack submarines, which can strike targets up to 1,000 kms from the coast with pinpoint accuracy. In October 2023, The Ministry of Defence awarded £3.95 billion of funding to BAE Systems for the next phase of the U.K.’s next-generation nuclear-powered attack submarine program, SSN-AUKUS.
BAE Systems boasts a long-term earnings growth rate of 14%. The Zacks Consensus Estimate of BAESY’s 2023 sales implies a growth rate of 33.6% from the prior-year reported figure.
Northrop Grumman’s systems and sensors are fielded on Virginia-class submarines. NOC builds the launcher subsystem for a common missile compartment for the U.S. Navy’s Columbia and the Royal Navy’s Dreadnought submarines. Its eject launch technology has powered more than 7,000 successful launches.
Northrop’s long-term earnings growth rate is pegged at 3.7%. The Zacks Consensus Estimate of NOC’s 2023 sales implies a growth rate of 5.8% from the prior-year reported figure.
Huntington Ingalls’ Newport News Shipbuilding unit collaborated with GD’s Electric Boat in building Virginia-class nuclear submarines. Its Newport News Shipbuilding division also participates in the design and construction of the Columbia-class (SSBN 826) submarine. In September 2023, the company successfully assembled hull sections of the Virginia-class submarine Arkansas (SSN 800) to form a single, watertight unit.
The long-term earnings growth of Huntington is pegged at 6.6%. The Zacks Consensus Estimate of HII’s 2023 sales suggests a growth rate of 3.5% from the prior-year reported figure.
In the past year, shares of GD have gained 0.8% against the industry’s 4.8% decline.
Source : Nasdaq