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Huntington (HII) Wins $305.2M Modification Deal for 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) Electric Boat involving Block V Virginia-class submarines.

Valued at $305.2 million, the contract involves the supply of long-lead-time materials for two additional Block V Virginia-class submarines, thus bringing the total contract value to $10.2 billion.

What’s Favoring Huntington Ingalls?

Nations are upgrading their defense capabilities to build up strength in their ability to conduct missions efficiently. In this context, the demand for submarines can be expected to increase manifold as part of initiative to improve undersea warfare competencies.

This stands to benefit Huntington Ingalls as its NNS segment is proactively into designing and constructing nuclear-powered aircraft carriers and submarines and is one of the two companies in the United States capable of constructing nuclear-powered submarines for the U.S. Navy.

Buoyed by such supremacy and with submarines becoming a more significant part of defense landscape, the company witnessed a substantial rise in demand for submarines and subsequently a consistent rise in revenues of NNS segment in the last few quarters. Notably, NNS recorded a rise of 8.3% in revenues in the most recent quarter.

NNS is accountable for constructing and delivering six module sections per submarine under contract to General Dynamics Electric Boat. General Dynamics’ Virginia-class submarine currently has 17 submarines in its backlog, scheduled for delivery through 2032.

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

Growth Prospects

Per the report from Mordor Intelligence, the global submarine market is expected to witness a CAGR of more than 4% over the 2023-2028 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 benefits 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 (three to five years) earnings growth rate is pegged at 3.8%. The Zacks Consensus Estimate for NOC’s 2023 earnings has been revised upwards by 2.1% in the past 60 days.

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 has been revised upwards by 3.6% in the past 60 days.

Price Movement

In the past month, shares of Huntington Ingalls have increased 1.1% against the industry’s fall of 1.8%.

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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