Case in point: Last week the U.S. Navy awarded two new contracts to General Dynamics (NYS: 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 (NYS: 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 (NYS: 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.
At the time this article was published Fool contributor Rich Smith does not own (or short) shares of any company named above. The Motley Fool owns shares of Northrop Grumman, General Dynamics, and Raytheon. We Fools don't all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.
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