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Huntington Begins Building Sixth NSC

Zacks Equity Research

Huntington Ingalls Industries, Inc. (HII) has begun construction of the sixth National Security Cutter (“NSC”) for the U.S. Coast Guard. The construction on the sixth NSC is progressing well and 400 tons of steel has already been cut and processed.

The NSC is the largest cutter of the Coast Guard fleet and is capable of meeting all maritime security mission needs. It is the most technically advanced class of cutter in the Coast Guard, with robust capabilities for maritime homeland security, law enforcement and national defense missions.

The NSCs are well designed to replace the 378-foot Hamilton-class high-endurance cutters. They are 418 feet long with a 54-foot beam and are capable of displacing 4,500 tons with a full load. They have a top speed of 28 knots, a range of 12,000 miles, an endurance of 60 days and a crew of 110.

To date, the company has delivered three NSCs while another three are in the construction phase at the shipbuilder. An electrical system was recently installed on the fourth NSC (under construction) and the ship is expected to be inaugurated on Oct 26, 2013. 70% of the units of Ingalls' fifth NSC (under construction) have been erected and the ship is scheduled to be launched in the spring of 2014.

In Jun 2013, the company was awarded a contract to buy major equipment like the main propulsion system, generators and electrical switchboards for the seventh NSC. The company noted that the back-to-back construction of NSCs have helped it to gain efficiency with lessons learnt from every ship built.

Huntington Ingalls – the spun-off unit of Northrop Grumman Corp. (NOC) – designs, builds and maintains nuclear and non-nuclear ship for the U.S. Navy and Coast Guard and provides after-market services for military vessels around the world. Going forward, the company sees a steady revenue stream from its products like the DDG 51 Aegis Destroyers, LPD Amphibious Transport Docks, U.S. Coast Guard NSCs and LPD Flight II.

However, Huntington Ingalls is in the same boat with other defense pros like General Dynamics Corp. (GD) and Lockheed Martin Corp. (LMT). The companies face the threat of sequestration, defense budget uncertainty and the adverse effects of the partial U.S. government shutdown.

Huntington Ingalls presently has a short-term Zacks Rank #3 (Hold). Stocks worth considering in the space are Northrop Grumman and Lockheed Martin, both with a Zacks Rank #2 (Buy).

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