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Case in point: Last week the U.S. Navy awarded two new contracts to General Dynamics (NYSE: GD ) to begin "long-lead" work on the next two Zumwalt-class guided missile destroyers. Construction of these ships, the USS Michael Monsoor and an as-yet-unnamed destroyer called only "DDG 1002" for now, is expected to cost $2 billion initially. But that's just a down payment on the ultimate cost, recently estimated at $3.3 billion apiece.
If these numbers surprise you, what with all the talk of defense spending cuts in Washington these days, then consider this: The most surprising news is that these vessels are going to be built at all. Originally, the Navy had planned to build 32 Zumwalt-class vessels. But as cost overruns mounted, talk in Washington turned to curtailing the Zumwalt program in favor of cheaper alternatives such as the Arleigh Burke-class of DDG 51s. Only two Zumwalts would be built -- one by General D, and the other by then-Northrop Grumman subsidiary -- and now independent shipbuilder -- Huntington Ingalls (NYSE: HII ) .
What's it mean to you?
The Navy's latest announcement is good news for investors in prime contractor General D, and also for key subcontractors such as Raytheon (NYSE: RTN ) , which builds much of the ships' electronics. The best news is that with the Navy agreeing to fund three ships out of a fleet recently capped at two, there's no reason to believe even more Zumwalts won't be commissioned in years to come. At $3.3 billion a pop, that could really add up on General Dynamics' top line.
DDG 1000, DDG 1001, DDG 1002 -- how many more ships will General Dynamics ultimately be asked to build? Add the stock to your watchlist and find out.