Credit: Shutterstock photoHuntington Ingalls Industries, Inc.HII recently won a modification contract related to nuclear submarines. Per the terms of the deal, the company will provide engineering, technical, design, configuration management and integrated logistics support, database management, research and development, modernization and industrial support to the submarines.
Valued at $104.3 million, the contract was awarded by the Naval Sea Systems Command, Washington, D.C. Work related to the deal will be executed in Newport News, VA and is expected to be completed by September 2019.
The company will utilize fiscal 2018 other procurement (Navy) fund to finance the task.
Nuclear Submarines & the United States
To counter the rising geopolitical tensions across the world, the U.S. government has been designing submarines since decades. In 1954, the U.S. Navy was the first to launch a nuclear-powered submarine. These submarines were markedly better than the diesel-engine ones, which had to make multiple stops for refueling. Currently, the Navy has three classes of nuclear-powered attack submarines - Virginia-class, Ohio-class and Los Angeles-class.
Notably, in the United States, the market for nuclear submarine is a consolidated one, operated by two prime players - Huntington and General Dynamics Corporation GD . As a result, both the companies enjoy a large share of the market as well as high profit margins.
In this context, it is imperative to mention that the U.S. administration has been allotting significant provision for nuclear submarines in the nation's defense budget, encouraging submarine-manufacturers like Huntington Ingalls to increase its production. Evidently, the fiscal 2019 budget proposal allocated $11.1 billion for submarines.
Our View
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 2017, Newport News delivered 60 submarines to the Navy that comprised 46 fast attack and 14 ballistic missile submarines. Moreover, of the 52 nuclear-powered fast attack submarines currently in service, 25 were delivered by Newport News.
This reflects Huntington Ingalls' significant role in the nuclear submarine market, enabling the company to win notable submarine-related contracts from the Pentagon. The latest contract win is a further testament to it.
Per a MarketWatch report, the global submarine market is expected to witness a CAGR of 4.8% by 2023. Considering this and the aforementioned developments, we can expect Huntington Ingalls to win more such submarine-related contracts, which in turn should boost its profit margin going ahead.
Price Movement
In a year's time, shares of Huntington Ingalls have rallied 19.5%, underperforming the industry 's 22.2% growth. This dismal performance may have caused due to intense competition that the company faces in the aerospace-defense space.
Zacks Rank & Key Picks
Huntington Ingalls currently carries a Zacks Rank #2 (Buy). Some other top-ranked stocks in the same sector are Aerojet Rocketdyne Holdings AJRD and Engility Holdings EGL . While Aerojet Rocketdyne Holdings sports a Zacks Rank #1 (Strong Buy), Engility Holdings carries a Zacks Rank of 2. You can see the complete list of today's Zacks #1 Rank stocks here.
Aerojet Rocketdyne came up with an average positive earnings surprise of 9.27% in the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings moved north 30.9% to $1.27 over the past 90 days.
Engility Holdings delivered an average positive earnings surprise of 19% in the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings climbed 16.8% to $2.02 over the past 90 days.
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Huntington Ingalls Industries, Inc. (HII): Free Stock Analysis Report
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
