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Huntington Ingalls (HII) Set to Buy Alion Science for $1.65B

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Huntington Ingalls Industries, Inc. (HII - Free Report) recently agreed to purchase Alion Science and Technology from Veritas Capital in a bid to enhance its footprint in high-growth mission-critical, cyber security market. The acquisition, worth $1.65 billion of cash, is expected to get completed in the second half of 2021.

The deal will cost Huntington one-time transaction and financing related expenses of $25 million in 2021.  

Benefits of the Acquisition

Alion offers advanced engineering along with research and developments services in the areas of Intelligence, Surveillance, Reconnaissance (ISR), military training and simulation, cyber, data analytics and other next-generation technology-based solutions.

Alion is poised for continued strong growth with over $3 billion in backlog today, with more than $5 billion in estimated contract value and a robust opportunity pipeline. This should boost Huntington’s operating results, post integration of Alion in its business. Evidently, taking into account Alion’s addition, Huntington’s Technical Solutions business segment is now projected to witness CAGR of 7%-9% in pro forma revenues during 2021-2024 time period. The transaction will also boost Huntington’s free cash flow outlook for 2022-2024 by $200 million.

The deal further creates substantial revenue and value creation opportunities worth $2.6 billion for Huntington over the long term. apart from being expected to be significantly cash flow accretive in fiscal 2022 and GAAP EPS accretive in fiscal 2023.

Moreover, the U.S. Navy represents about one third of Alion’s current annual revenues while its customer base also includes other intelligence communities. No doubt, Alion’s addition to Huntington’s portfolio will offer this shipbuilder a leverage in the global defense cyber security market, which is expected to witness a CAGR of 4.2% during 2021-2026 (as estimated by Mordor Intelligence).

Recent Acquisitions in the Defense Space

Of late, we are witnessing quite a few major mergers and acquisitions within the U.S. defense space, irrespective of the global volatile market conditions caused by the impact of the COVID-19 pandemic. These acquisitions aim at strengthening the acquiring company’s product portfolio, along with offering them with economies of scale.  Let’s have a look at a few such acquisitions that took place this year.

In May 2021, Teledyne Technologies (TDY - Free Report) completed the acquisition of FLIR Systems in a cash-and-stock deal worth approximately $8.2 billion.  In the same month, Leidos Holdings (LDOS - Free Report) completed the acquisition of Gibbs & Cox, Inc. for approximately $380 million in cash. In January 2021, TransDigm Group Incorporated (TDG - Free Report) finalized the purchase of Cobham Aero Connectivity for approximately $965 million, in cash.

Price Movement & Zacks Rank

In the past six months, shares of Huntington Ingalls have gained 21.7% compared with the industry’s 17% growth.

Zacks Investment ResearchImage Source: Zacks Investment Research

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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