Huntington Ingalls (HII) Wins Deal to Aid Submarine Program
Huntington Ingalls Industries Inc. HII recently secured a modification contract to conduct research and development of advanced submarine technologies for current and future submarine platforms. The award has been provided by the Naval Sea Systems Command, Washington, DC.
Valued at $33.2 million, this contract is projected to be completed by October 2025. Work related to this contract will be carried out in Newport News, VA.
What’s Favoring Huntington Ingalls?
The changing dynamics of the military landscape and the rising geopolitical tension make it mandatory for a country to continuously evolve and strengthen its defense structure. The increased defense spending is mainly aimed at upgrading and building defense systems. To this end, military submarines with enhanced undersea warfare capabilities form an integral part of any nation’s defense system.
Therefore, the increased focus on military submarines is likely to benefit Huntington Ingalls, with its Newport News Shipbuilding (“NNS”) division being one of the only two contractors in the United States that can construct nuclear-powered submarines for the U.S. Navy. The company’s product portfolio includes the Columbia-class (SSBN) and Virginia-class (SSN) submarines. Notably, from 1960 to Dec 31, 2023, NNS delivered 63 submarines to the U.S. Navy, comprising 49 fast attack and 14 ballistic missile submarines.
Of the 49 nuclear-powered fast attack submarines currently in active service, 23 were delivered by NNS. This reflects the solid demand that HII’s submarine programs enjoy in the U.S. defense space, which, along with the rising demand for submarines, should fetch notable order flows for HII. This should substantially benefit the company and boost its revenue generation prospects from the NSS business unit, which recorded a year-over-year improvement of 4.8% in revenues in 2023.
Growth Prospects
Nations are investing heavily in submarines to upgrade their sea warfare capabilities. Per a report by the Research and Markets firm, the global submarine market is expected to witness a compound annual growth rate of 4.3% during 2024-2028. This indicates ample growth opportunities for Huntington Ingalls as it enjoys a lucrative position in the military submarine space.
Some other defense players that can gain from the expanding submarine market are General Dynamics GD, Northrop Grumman NOC and BAE Systems PLC BAESY.
General Dynamics’ Electric Boat business unit is the prime contractor and lead shipyard on all Navy nuclear-powered submarine programs. The company ended 2023 with a backlog worth $18 billion for Virginia-class submarines and $13.3 billion for Columbia-class.
GD boasts a long-term (three-to five-years) growth rate of 10.8%. The Zacks Consensus Estimate for 2024 sales indicates growth of 10.1% from 2023.
Northrop has systems and sensors fielded on Virginia-class submarines. NOC also builds the launcher subsystem for a common missile compartment for the U.S. Navy’s Columbia and the Royal Navy’s Dreadnought submarines. Its eject launch technology has powered more than 7,000 successful launches.
NOC boasts a long-term earnings growth rate of 4.1%. The Zacks Consensus Estimate for NOC’s 2023 earnings has been revised upward by 0.3% in the past 60 days.
BAE Systems’ Astute class is the largest and most advanced attack submarine for the U.K. Royal Navy, which can strike targets up to 1,000 kilometers from the coast with pinpoint accuracy. Its Dreadnought Class submarine is currently under construction.
BAESY boasts a long-term earnings growth rate of 12.9%. The Zacks Consensus Estimate for 2024 sales indicates growth of 34.1% from 2023.
Price Performance
In the past year, shares of Huntington Ingalls have gained 46.5% against the industry’s 6.4% decline.
Image Source: Zacks Investment Research
Zacks Rank
Huntington Ingalls currently has a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank stocks here.
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Northrop Grumman Corporation (NOC) : Free Stock Analysis Report
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