Huntington Ingalls' (HII) Unit Wins $2.8B Deal From US Navy

Military shipbuilder, Huntington Ingalls Industries Inc.'s (NYSE:HII) unit, Newport News, has clinched a contract to support the refueling and complex overhaul of USS George Washington (CVN73). Work for this deal will be over by August 2021.

Details of the Contract

Valued at $2.8 billion, the contract was awarded by the Naval Sea Systems Command, Washington Navy Yard, Washington, D.C.

Per the deal, Huntington Ingalls will carry out the work in Newport News, VA. The company will utilize fiscal 2017 and 2016 shipbuilding and conversion (Navy) funds to complete operations.

A Brief Note on USS George Washington

USS George Washington is the sixth ship in the Nimitz-class aircraft carriers and the fourth U.S. Navy ship to be named after George Washington, the country’s first president. Notably, the Nimitz-class aircraft carriers are the largest nuclear-powered warships that can accommodate up to 6000 personnel on board.

The latest models of this family of fleet, including CVN 73, are 317m in length and can reach a maximum speed of more than 30kt. These ships are equipped with Raytheon Company’s (NYSE:RTN) AN/SLQ-32(V) electronic warfare system that detects hostile radar emissions, providing a warning signal and interfaces to the ship's countermeasures systems.

Why Huntington Ingalls?

The company is the unique building yard contractor for all ships of the CVN-68 class, the reactor planning yard, the lead design refueling yard and the only private shipyard capable of refueling and overhauling nuclear-powered aircraft carriers.

Consequently, it is the only company with the knowledge, experience and facilities that are essential for supporting the refueling and overhaul of CVN-73 without disturbing the Navy-wide overhaul and repair schedule.

Our View

Huntington Ingalls is one of the largest military shipbuilders in the country. Over 70% of the active Navy fleet consists of Huntington ships. Notably, the company’s Newport News division is the nation’s sole designer, builder and refueler of nuclear-powered aircraft carriers. It also offers one of only two shipyards capable of designing and building nuclear-powered submarines.

Going ahead, we expect the company’s overall growth momentum to continue, given the recent positive budget revision done by the Trump administration. Notably, the shipbuilding business outlook remains strong, particularly in light of the fiscal 2017 spending bill. The bill includes Ohio-Class replacement, advanced procurement for refueling CVN-74, advanced procurement for CVN-80, two Virginia class submarines, two DDG-51s, advanced procurement for LHA-8 and TAO(X), continuation of CVN-79 and investment in a new Coast Guard Icebreaker. We believe the recently won contract by Huntington Ingalls to be a part of this encouraging bill and can expect more to such come in days ahead, which in turn will boost the company’s growth trajectory.

Price Movement

Shares of Huntington Ingalls have rallied 29% in the last year, underperforming the industry’s gain of 38.2%. This could be because the earlier budget cuts have put pressure on the top line. Also, budget deficits and political uncertainty might make future defense budgets vulnerable to cutbacks. As a result, the company's performance lagged the likes of The Boeing Company (NYSE:BA) and Airbus Group (PA:AIR) SE (OTC:EADSY) that outperformed the industry.

Zacks Rank

Huntington Ingalls currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Zacks' 10-Minute Stock-Picking Secret

Since 1988, the Zacks system has more than doubled the S&P 500 with an average gain of +25% per year. With compounding, rebalancing, and exclusive of fees, it can turn thousands into millions of dollars.

But here's something even more remarkable: You can master this proven system without going to a single class or seminar. And then you can apply it to your portfolio in as little as 10 minutes a month.

Learn the secret >>