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Huntington (HII) Wins $567.6M Deal for Columbia-Class Submarine

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Huntington Ingalls Industries, Inc.’s (HII - Free Report) business segment, Newport News Shipbuilding (“NNS”), recently clinched a modification subcontract from General Dynamics (GD - Free Report) involving Columbia-class ballistic missile submarines.

Valued at $567.6 million, the contract involves the supply of long-lead-time materials and advanced construction activities for the Columbia-class ballistic missile submarine Build II program, the next five submarines in the class.

What’s Favoring Huntington Ingalls?

General Dynamics’ Columbia-class ballistic-missile submarine currently anticipates a 12-boat program, which the Navy considers its top acquisition priority. These submarines boast strategic deterrent capabilities and will replace the current Ohio-class ballistic missile submarine fleet as it reaches the end of its service life.

NNS is a major shipbuilding partner in the Columbia-class program, constructing and delivering six module sections per submarine under contract to General Dynamics Electric Boat.

The first boat is scheduled to be delivered in 2027, and the construction is scheduled to continue for two decades. The value of the Navy’s program of record is more than $110 billion.

Considering the importance and demand for the submarine, HII is well-poised to win several significant awards involving the next-generation submarine in the days ahead, like the latest one. This should substantially benefit the company and boost its revenue generation prospects from the NSS business unit.

Growth Prospects

Nations are upgrading their defense capabilities to build up strength in their ability to carry out missions efficiently. In this context, the demand for submarines has increased manifold as part of improving undersea warfare competencies. This demand for submarines is likely to fortify in the days ahead.

Per Allied Market Research, the global submarine market is expected to witness a CAGR of more than 4% over the 2022-2031 period. Hence, the demand for submarines may gain traction and benefit companies like General Dynamics and Huntington Ingalls, which remain the two major contractors for submarine manufacturing.

Prominent defense majors that are likely to enjoy the perks of the expanding submarine market are Northrop Grumman (NOC - Free Report) and BAE Systems plc (BAESY - Free Report) .

Northrop’s seabed-to-space advanced multi-domain maritime capabilities enable current and future maritime missions. The company has systems and sensors fielded on Virginia-class submarines, while its WSN-7 is an inertial navigator that allows for precise navigation and aiming of weapons in ships and submarines to operate in areas where GPS is denied.

Northrop’s long-term earnings growth rate is pegged at 3.5%. Shares of NOC have returned 1.1% value to its investors in the past year.

BAE Systems’ Astute class is the largest and most advanced attack submarine for the Royal Navy. Equipped with world-leading sensors, the Astute class carries both Tomahawk Land Attack Cruise Missiles and Spearfish heavyweight torpedoes.

BAE Systems boasts a long-term earnings growth rate of 13.7%. The Zacks Consensus Estimate for BAESY’s 2023 earnings suggests a growth rate of 5.9% from the prior-year reported figure.

Price Movement

In the past year, shares of Huntington Ingalls have decreased 1.7% compared with the industry’s fall of 8.5%.

Zacks Investment Research
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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