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Huntington Ingalls Wins $200M Deal to Support CVN 80 Program

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Huntington Ingalls Industries, Inc.’s (HII - Free Report) business segment, Newport News, recently secured a modification contract to purchase additional long lead time material for supporting the USS Enterprise (CVN 80). Work related to the deal is scheduled to be over by February 2027.

Valued at $200.4 million, the contract was awarded by the Naval Sea Systems Command, Washington Navy Yard, Washington, D.C. The company will utilize fiscal 2018 shipbuilding and conversion (Navy) fund to finance the task, which will be executed in Newport News, VA.

A Brief Note on USS Enterprise

The USS Enterprise (CVN 80), Gerald R. Ford class’ third aircraft carrier, bears the name of the Navy’s first nuclear-powered aircraft carrier, USS Enterprise (CVN 65).

Once CVN 80 enters service, it will replace the USS Dwight D. Eisenhower (CVN 69) — a Nimitz-class ship. Currently, advanced fabrication of CVN 80 is underway, for which the company expects to witness contracting activity by 2020 end.

The air wing of this new USS Enterprise will be capable of supporting more than 75 aircraft of varied kinds, including fixed-wing and rotary-wing systems. Moreover, an Electromagnetic Aircraft Launch System (EMALS) will be incorporated in the ship to replace the steam catapults of the older versions.

Our View

Huntington Ingalls is one of the largest military shipbuilders in the country. Over 70% of the active Navy fleet consists of its ships. Notably, this military shipbuilder’s Newport News division is the nation’s sole designer, builder and refueler of nuclear-powered aircraft carriers. It also offers one of only two shipyards capable of designing and building nuclear-powered submarines.

Moreover, it is imperative to mention that Huntington Ingalls’ shipbuilding business outlook remains upbeat, considering the fiscal 2019 budget that has been approved recently by the U.S. Senate. Per the latest financial plan, major war fighting investments includes spending plans of $18.3 billion on Shipbuilding. Also, incremental funding for nuclear aircraft carriers — CVN-79 and CVN-80 — is a part of the fiscal 2019 budget.

No doubt, one of the prime beneficiaries of this new spending proposal will be Huntington Ingalls. For more than 100 years, this company has been building ships, aircraft carriers and submarines for the U.S. Navy at the shipyards in Virginia and Mississippi.  Considering such optimistic budget allocation, we may expect Huntington Ingalls to win more such contracts involving its combat-proven military warships in days ahead.

Price Movement

In a year’s time, Huntington Ingalls’ shares have gained about 16.5% compared with the industry’s 30.2% rally. The underperformance may have been caused by huge debt levels that the company bears, with the current market situation in the United States being in favor of increasing interest rates.


Zacks Rank & Stocks to Consider    

Huntington Ingalls currently has a Zacks Rank #5 (Strong Sell).

A few better-ranked stocks in the same space are Northrop Grumman (NOC - Free Report) , Textron (TXT - Free Report) and Wesco Aircraft Holdings (WAIR - Free Report) . While Northrop Grumman sports a Zacks Rank #1 (Strong Buy), Textron and Wesco Aircraft Holdings carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Northrop Grumman delivered an average positive earnings surprise of 13.87% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings moved north 5.65% to $16.44 in the last 90 days.

Textron came up with an average positive earnings surprise of 16.64% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings climbed 2.95% to $3.15 in the last 90 days.

Wesco Aircraft Holdings’ long-term growth rate is projected at 12%. The Zacks Consensus Estimate for 2018 earnings moved up 10% to 77 cents in the last 90 days.

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