Huntington Ingalls (HII) Wins $65M Deal to Modify USS Helena
Military shipbuilder Huntington Ingalls Industries Inc.’s HII business unit, Newport News, recently secured a modification contract for performing dry-docking operations of USS Helena (SSN 725). Work related to this deal will be executed at the company’s shipbuilding yard in Newport New, VA.
Valued at $65.1 million, the contract was awarded by the Naval Sea Systems Command, Washington, D.C. Per the terms of the deal, the company will conduct repairing, maintenance, upgrades and modernization of USS Helena. Huntington Ingalls will utilize fiscal 2018 operations and maintenance (Navy) funds to complete the task by April 2018.
A Brief Note on USS Helena
USS Helena (SSN 725) is a Los Angeles-class nuclear-powered fast attack submarine. Notably, the Los Angeles-class forms the backbone of the U.S. Navy's submarine force.
Nuclear Submarines & the United States
To counter the rising geopolitical tensions across the world, the U.S. government has been designing submarines for decades. Notably, the modern-day nuclear-powered submarines are markedly better than the diesel-engine ones that had to make multiple stops for refueling.
In the United States, the market for nuclear submarine is a consolidated one, operated by two prime players — Huntington Ingalls and General Dynamics Corporation GD. As a result both the companies enjoy a large share of the market as well as high profit margins.
It is imperative to mention in this context that recently the U.S. administration has been allotting significant provision for nuclear submarines in the nation’s defense budget, thereby encouraging submarine-manufacturers like Huntington Ingalls in boosting production. Evidently, the fiscal 2017 budget proposal allocated $8.1 billion for submarines.
How Will the Deal Benefit Huntington?
Huntington’s Newport News division enjoys one of the leading positions in the designing and building nuclear-powered submarines for the U.S. Navy. As of December 2016, Newport News delivered 59 submarines to the U.S. Navy which comprised 45 fast attack and 14 ballistic missile submarines. Moreover, of the 52 nuclear-powered fast attack submarines currently in active service, 25 were delivered by Newport News.
The global submarine market is expected to grow at a CAGR of 5% to reach a value of $27.6 billion from 2016 to 2021, as forecasted by Technavio market research analysts. Considering this and the aforementioned developments, we can expect Huntington Ingalls to win more such submarine-related contracts going ahead, thereby boosting its profit margin.
Price Performance
Shares of Huntington have rallied 47.1% over a year, outperforming the industry’s 46.9% gain. The company is the sole designer and manufacturer of nuclear powered aircraft carriers in the U.S. Over 70% of the active U.S. Navy fleet consists of Huntington Ingalls ships and the company continues to enjoy strong order growth from the U.S. Navy. This in turn may have led to the company’s aforementioned outperformance.
Zacks Rank and Other Stocks to Consider
Huntington Ingalls currently carries a Zacks Rank #2 (Buy).
A few other top-ranked stocks in the aerospace-defense space are The Boeing Company BA and Northrop Grumman Corporation NOC, both of which carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
Boeing surpassed the Zacks Consensus Estimate in past four quarters with an average of 13.67%. The company has a solid long-term growth earnings growth of 13%.
Northrop Grumman surpassed the Zacks Consensus Estimate in past four quarters with an average of 12.60%. The company has a solid long-term growth earnings growth of 7.5%.
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Northrop Grumman Corporation (NOC) : Free Stock Analysis Report
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