Huntington Ingalls Wins Contract For CVN 78 Aircraft Carrier

Huntington Ingalls Industries, Inc.’s (NYSE:HII) business segment, Newport News, recently secured a contract to perform early service life period work on USS Gerald R. Ford (CVN 78). Work related to the deal is scheduled to be over by June 2024.

Details of the Deal

Valued at $687.1 million, the contract was awarded by the Naval Sea Systems Command, Washington Navy Yard, Washington, D.C.

Through this deal, Huntington Ingalls will support ship repair and modernization during continuous incremental availabilities, planned incremental availabilities as well as full-ship shock trials. The entire task will be executed in Newport News, VA.

A Brief Note on CVN 78

USS Gerald R. Ford (CVN 78) is the first new design for an aircraft carrier since USS Nimitz (CVN 68). The ship is equipped with two newly-designed reactors and has 250% more electrical capacity than previous carriers. These features will allow the ship to load weapons and launch aircraft faster than ever before.

Huntington Ingalls’ Expertise in Aircraft Carriers

Building an aircraft carrier takes generations of experience, hundreds of thousands of man hours, years of planning and steady determination. In fact, these carriers are considered to be the largest ships in the U.S. Navy's fleet. Since 1933, Huntington Ingalls’ Newport News has designed and built more than 30 aircraft carriers for the U.S. Navy. These include all 10 Nimitz class (CVN 68) aircraft carriers currently in active service and the Gerald R. Ford class (CVN 78) aircraft carrier.

In 2017, the company delivered the U.S. Navy's newest carrier — USS Gerald R. Ford (CVN 78) — and continues to be the exclusive prime contractor for nuclear aircraft carrier refueling and complex overhaul (RCOH). It is currently performing the RCOH of USS George Washington (CVN 73). The aforementioned developments reflect Huntington Ingalls’ valued experience in constructing nuclear aircraft carriers.

Our View

Huntington Ingalls is one of the largest military shipbuilders in the United States. Over 70% of the active Navy fleet consists of this company’s ships.

In particular, this military shipbuilder’s Newport News division is the nation’s sole designer, builder and refueler of nuclear-powered aircraft carriers. Considering this unit’s aforementioned expertise in aircraft carriers, it is quite obvious that this division frequently secures shipbuilding- related contracts from the U.S. Navy and the country’s foreign allies. The latest contract win is a further testament to that.

As a result, the Newport News division is considered to be the major contributor to Huntington Ingalls’ revenue growth. In the first quarter of 2019, the segment generated revenues of $1.3 billion, constituting 60.8% of the company’s total revenues. We may expect this segment to reflect similar growth trends in the coming days as the current U.S. administration focuses on expanding its defense base immensely.

Looking ahead, the U.S. budget proposal for fiscal 2020, comprising the biggest naval budget request in more than 20 years, should bode well for renowned shipbuilders like Huntington Ingalls.

Price Performance

In a year’s time, shares of Huntington Ingalls have lost 4.1% compared with its industry’s 2.6% decline.

Zacks Rank & Key Picks

Huntington Ingalls currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same industry are Wesco Aircraft Holdings (NYSE:WAIR) , Northrop Grumman Corp. (NYSE:NOC) and Leidos Holdings (NYSE:LDOS) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Wesco Aircraft’s long-term growth rate stands at 12%. The Zacks Consensus Estimate for 2019 earnings has moved 3.7% north to 84 cents over the past 60 days.

Northrop Grumman came up with average positive earnings surprise of 18.50% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has climbed 2.26% to $19.42 over the past 60 days.

Leidos Holdings delivered average positive earnings surprise of 6.81% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has moved 1.54% up to $4.60 over the past 60 days.

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