Austal Ltd (ASX: ASB) shares are starting the week with a bang.
In morning trade, the ASX All Ords share is up 6.5% to $2.39.
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Why is this ASX All Ords shares racing higher?
The catalyst for this gain has been news that Austal has won a major contract in the United States.
According to the release, Austal has been awarded a US$450 million (~A$670 million) contract by General Dynamics Electric Boat.
This contract will enable Austal USA to expand production capacity at its US shipyard in support of the U.S. Navy Submarine Industrial Base (SIB).
Management notes that this contract award will fund Austal USA to enhance its existing infrastructure by designing, constructing and outfitting a new module fabrication and outfitting facility at its Mobile shipyard. This will support the U.S. Navy goal of delivering one Columbia-class and two Virginia-class submarines annually.
Construction of the new building will start this US autumn and is expected to be complete in 2026. When fully operational, the building will support approximately 1,000 jobs and provide capability to fabricate, outfit, and transport submarine components.
'Demonstrates confidence in Austal'
The ASX All Ords share's chief executive officer, Paddy Gregg, believes the contract award is a testament to the growing partnership with General Dynamic Electric Boat. He also feels it demonstrates its confidence in Austal USA as a valuable industry partner for these two important U.S. Navy submarine programs.
Gregg commented:
General Dynamics Electric Boat has recognised that Austal USA is a solid partner to deliver high-quality components for Virginia- and Columbia-class submarines. This growing partnership demonstrates confidence in Austal USA's commitment to meet the needs of the U.S. maritime industrial base and support the most critical needs of the U.S. Navy.
Should you invest?
Analysts at Bell Potter are positive on this ASX All Ords share. They currently have a buy rating and $2.75 price target on its shares. This implies potential upside of 15% for investors from current levels over the next 12 months.
However, it is worth noting that this recommendation was from before this contract award was announced. So, it is possible that the broker could make a change to its recommendation in the coming days after assessing the news.
It recently stated that "Austal remains undervalued by the market and the current share price provides an attractive entry point. We retain our BUY recommendation with a $2.75 PT."
