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Huntington Ingalls Wins Navy Deal to Support USS Columbus

Zacks Equity Research

Huntington Ingalls Industries, Inc.'s HII unit, Newport News, has clinched a modification contract to support the USS Columbus (SSN 762) ship. Work related to the deal is scheduled to be completed by August 2019.

Details of the Deal

Valued at $18.9 million, the contract was awarded by the Supervisor of Shipbuilding, Conversion and Repair, Newport News, VI. Per the modification, Newport News will support maintenance, repair, fleet-funded alterations, testing and routine work related to the USS Columbus.

The entire task will be performed in Newport News, VI.

A Brief Note on the USS Columbus

USS Columbus (SSN-762), the fourth ship of the Navy to be named after Columbus, OH, is a Los Angeles-class attack submarine. It is to be noted that on Mar 21, 1986, General Dynamics Corporation's (GD) Electric Boat division had received a contract to build the ship.

Our View

Huntington Ingalls is the prime industrial employer in Virginia. Through its Newport News segment, the company operates as the nation's sole designer, builder and refueler of nuclear-powered aircraft carriers. Notably, over 70% of the active Navy fleet comprise Huntington Ingalls ships. The company's Ingalls Shipbuilding segment is the sole manufacturer of amphibious assault ships for the Navy.

Also, we note that Huntington Ingalls is the only builder of National Security Cutters (NSCs) for the U.S. Coast Guard and one of only two companies that build the DDG-51 Arleigh Burke-class destroyers. These attributes helped the company to win regular shipbuilding related orders from the Pentagon. The latest contract win is a bright instance of the same.

We expect Huntington Ingalls to maintain this momentum, given the current U.S. administration’s favoritism toward increasing defense spending. Notably, the shipbuilding business outlook remains strong, particularly in light of the U.S. Navy’s latest shipbuilding plan that calls for building a 355-ship fleet. In sync with this, Congressional Budget Office expects average construction costs for the Navy’s 2019 shipbuilding plan to be $28.9 billion per year over the next 30 years.  This amount is 80% more than what the Navy has spent, on average, over the past 30 years.

Price Movement

In a year’s time, shares of Huntington Ingalls have plunged 18.6%, underperforming the industry’s 1.6% fall.


Zacks Rank

Huntington Ingalls currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same sector are The Boeing Company BA, Spirit Aerosystems Holdings SPR and Heico Corporation HEI. While Boeing and Spirit Aerosystems sport a Zacks Rank #1 (Strong Buy), Heico carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boeing delivered average positive earnings surprise of 17.08% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has moved 11.3% north to $20.13 over the past 90 days.

Spirit Aerosystems’ long-term growth estimate currently stands at 7.80%. The Zacks Consensus Estimate for 2019 earnings has climbed 3.7% to $7.56 over the past 90 days.

Heico Corporation’s long-term growth estimate is pegged at 12.10%. The Zacks Consensus Estimate for 2019 earnings has moved up 5.9% to $2.14 over the past 90 days.

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