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Huntington Ingalls Industries (HII - Snapshot Report) has decided to shut down the Gulfport Facility – Gulfport Composite Center of Excellence – by May 2014. This move came in the wake of weak U.S. Navy utilization and reduced demand for the Navy's Zumwalt-class destroyers.

The Missouri-based Gulfport shipyard is facing lukewarm demand for its composite products from the U.S. Navy. Low Zumwalt-class (DDG 1000) ship construction as well as the U.S. Navy’s recent decision to use steel products on Lyndon B. Johnson (DDG 1002) has prompted Huntington Ingalls to come up with the decision.

The unit is working closely with the U.S. Navy to complete work on the Michael Monsoor (DDG 1001) and the mast of Portland (LPD 27) by the end of the first quarter of 2014. The closure will unfortunately reduce the work force by 427 at the Gulfport yard either through layoffs or transfers.

The DDG-1000 Zumwalt-class destroyer is the U.S. Navy's next-generation, guided-missile naval destroyer. Going forward, these destroyers will help in creating a new generation of advanced multi-mission surface combat ships. The ship will consist of a low radar profile, an integrated power system and a total ship computing environment infrastructure.

In August, the U.S. Navy placed an order with Bath Iron Works, a General Dynamics Corp. (GD - Analyst Report) affiliate, for the third and final deckhouse with more traditional steel fabrication.

The largest military shipbuilder in the U.S., Huntington Ingalls is the prime industrial employer in Virginia. Huntington Ingalls is a spun-off unit of Northrop Grumman Corp. (NOC - Analyst Report). It has shipyards in Pascagoula, MS, and in a suburb of New Orleans, Avondale, LA. The latest closure announcement has not affected these facilities although the company has already rationalized the Louisiana facility.

Last month, Huntington Ingalls posted impressive second quarter 2013 results on the back of solid program execution at Ingalls Shipbuilding and Newport News Shipbuilding. The company’s earnings exceeded our expectation by 21.7% and the year-ago number by 12.0%.

Going forward, the company sees a steady revenue stream from the construction of five new DDG-51 Arleigh Burke-class guided missile destroyers and the National Security Cutter Munro (NSC-6), and also from the mothballing of the nuclear aircraft carrier USS Enterprise (CVN 65). During the quarter, Huntington Ingalls won $5.3 billion of new contracts, boosting the total backlog to $20.7 billion.

Huntington Ingalls presently retains a Zacks Rank #2 (Buy). Apart from Huntington Ingalls, favorably placed stock in the sector also includes Zacks Ranked #2 Lockheed Martin Corp. (LMT - Analyst Report).

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