On Monday, the U.S. Department of Defense announced that it'd awarded Electric Boat Corp, a division of General Dynamics (NYSE: GD ) , over $17.6 billion for 10 Virginia-class, nuclear-powered attack submarines. Further, Rear Adm. David Johnson, stated, "The Block IV award is the largest shipbuilding contract in U.S. Navy history in terms of total dollar value." That's great news for General Dynamics and its partner when it comes to building the Virginia-class submarines, Huntington Ingalls Industries (NYSE: HII ) . Here's what else you need to know.
$17.6 billion and counting
According to the DoD, the award is a fixed-price, multi-year contract for the construction of 10 Virginia-Class submarines from fiscal 2014-2018. Further, Huntington Ingalls' Newport News Shipbuilding and Electric Boat will each build one sub per year for a total of two subs per year over a five-year period. According to General Dynamics, construction of the first Block IV sub, SSN-792, will begin May 1, and the 10th ship is scheduled for delivery in 2023.
In a press release, Jeffrey S. Geiger, president of Electric Boat, stated; "This award has great significance for the U.S. Navy, our company and the entire submarine industrial base. ... By continuing to produce two ships per year, the Navy and industry team retains the stability required to achieve increased efficiencies, providing the fleet with the submarines it needs to sustain the nation's undersea dominance."
Even better? The contract includes options for on-board repair parts, which could bring the contract to over $17.8 billion, if exercised.
The good news keeps coming
In addition to its recent $17.6 billion contract win, General Dynamics has a number of things going for it. On April 23, General Dynamics reported its first-quarter 2014 results, and, unlike defense giants Boeing (NYSE: BA ) and Lockheed Martin (NYSE: LMT ) which saw decreases in their first-quarter defense backlogs due to the continuation of sequestration and budget cuts, General Dynamics' backlog increased to $56 billion, which is up from a little over $46 billion in its fourth-quarter 2013. More importantly, General Dynamics' backlog for this same time last year was $48.4 billion.
Plus, General Dynamics' total operating margins increased to 11.9%, up from 11.4% for the same time last year, and diluted earnings per share increased to $1.71, up from $1.62 for this same time last year -- although it should be noted that General Dynamics decreased its diluted weighted average shares outstanding from 353.5 million in the first-quarter of 2013 to 347.2 million for the first quarter of 2014.
What this means
General Dynamics' future looks solid. Not only has it managed to increase its backlog during sequestration, its recent win of $17.6 billion is fantastic news. Consequently, if you're looking for your next great defense stock for the long term, you might want to give General Dynamics a closer look.
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