When you think of General Dynamics, the first image that comes to mind is likely a massive tank rolling across the battlefield. However, despite being the company’s most iconic product, tank production only accounts for a small fraction of General Dynamics’ overall sales. In reality, the company’s marine systems division is its largest revenue generator, bringing in a whopping $12.5 billion last year.
What’s more surprising is that not all of General Dynamics’ marine systems products are designed for combat. While the company does build nuclear-powered submarines and destroyers, it also constructs vessels focused on supporting the U.S. Navy’s logistical operations. A recent example is the company’s $6.8 billion contract to build oil tankers for the Navy.
The contract, awarded to General Dynamics’ National Steel and Shipbuilding Co. (NASSCO) subsidiary, will see the construction of eight John Lewis-class fleet replenishment oilers between now and 2035. These vessels will be crewed by civilian mariners and will play a critical role in keeping the U.S. Navy fueled and supplied.
While this contract is certainly significant, it may not be enough to drive significant growth for General Dynamics’ stock. Spread over 10 years, the contract amounts to around $675 million per year, which is only a 1.6% boost to the company’s annual revenues.
Furthermore, the marine systems division has the lowest profit margins within General Dynamics, making it less attractive for investors seeking to maximize profits. With the company’s stock already trading at a premium, investors may want to exercise caution before jumping in.
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