Huntington Ingalls (HII) Wins Navy Deal to Aid DDG 51 Ships

Huntington Ingalls Industries, Inc. HII recently secured a modification contract to support the DDG 51 class destroyer program. In particular, the modification will be done to fund capital expenditure projects for offering shipbuilding supplier industrial base efforts involving the DDG 51 ships.

Details of the Deal

Valued at $20 million, the contract was awarded by the Naval Sea Systems Command, Washington, D.C. Per the terms of the deal, the shipbuilder will also fund supplier base efforts to address supply chain fragility to ensure future readiness of the DDG-51 fleet.

Work related to the deal is scheduled to be over by April 2029 and will be executed in Pascagoula, MS.

A Brief Note on DDG-51

The DDG 51 Arleigh Burke-class is a multi-mission warship. It features an advanced anti-submarine warfare system, the AEGIS combat system, the Vertical Launching System, two embarked SH-60 helicopters along with advanced anti-aircraft missiles and land-attack missiles. Impressively, the warship offers protection against a wide range of threats, including ballistic missiles.

What is Favoring Huntington Ingalls?

Huntington Ingalls’ business segment, Ingalls, has in-depth experience in manufacturing amphibious assault and expeditionary ships for the U.S. Navy. Being the U.S. Navy's primary surface combatant, the Aegis-equipped Arleigh Burke class (DDG 51) destroyers enjoy solid demand, indicating the possibility of increased revenue recognition for the company in the coming days.

We expect the latest contract win to help Huntington’s Ingalls unit to witness solid positive top-line growth in the upcoming quarters.

Moreover, the fiscal 2022 defense budget includes a spending provision of $2.4 billion for procuring one DDG-51 ship in 2021. So we may expect relevant contracts and subsequent modifications, which in turn will boost Huntington Ingalls’ results.

Looking Ahead

Per the latest report by Technavio, the global naval shipbuilding market’s worth is expected to increase $13.24 billion during the 2020-2025 period at a CAGR of 2.73%. This, in turn, should boost growth of various assault ships, including DDG-51. Huntington Ingalls — being a major shipbuilding giant — is likely to benefit.

Other major combat shipbuilding companies across the globe should also benefit from such market projections. These include:

General Dynamics GD has been serving the U.S. Navy by constructing and delivering next-generation combat ships for decades. The company is a co-contractor with Huntington Ingalls for the construction of the DDG-51 ships.

General Dynamics reported third-quarter 2021 earnings from continuing operations of $3.07 per share, which beat the Zacks Consensus Estimate by 3.4%. In the past six months, the stock has gained 4.9%.

Bae Systems BAESY designs and manufactures naval ships and submarines, as well as their state-of-the-art combat systems and equipment. also It also offers an array of associated services, including training solutions, maintenance and modernization programs to support ships and equipment in service around the world.

In September 2021, BAE Systems won a five-year Systems Engineering and Integration Support Services contract worth up to $478 million to continue supporting the U.S. Navy Strategic Systems Programs (SSP) office.  In the past six months, this stock has risen 3%.

Mitsubishi Heavy Industries MHVYF manufactures naval surface ships as well as submarines. The company also provides after-sales service for destroyers and submarines.

Mitsubishi Heavy Industries incurred a quarterly loss of 2 cents per share versus the Zacks Consensus Estimate for earnings of 43 cents. In the past six months, this stock has declined 16.4%.

Price Movement   

In a year’s time, shares of Huntington Ingalls have gained 17.6% against the industry’s 27.1% decline.

Image Source: Zacks Investment Research

Zacks Rank

Huntington Ingalls currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

 

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