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Huntington Ingalls' Newport Unit Wins Submarine Support Deal

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Huntington Ingalls Industries’ (HII - Free Report) Newport News Shipbuilding division recently secured a modification contract for providing engineering, technical, trade and program management support for operational and decommissioning submarines and special mission submersibles. The contract, value at $36.6 million, has been awarded by the Naval Sea Systems Command, Washington, D.C.

Per the deal terms, Huntington’s Newport News division will also provide advanced submarine research and development support. Work related to the deal will be majorly executed in Newport News, VA, along with other locations across the country and is expected to be completed by September 2022.

Submarine Support Services by Huntington Ingalls

Alongside building Columbia and Virginia-class submarines — two of the world’s newest ballistic missile submarines developed in partnership with General Dynamics’ (GD - Free Report) — the company offers submarine modernization and repair services at naval shipyards, fleet homeports and other locations globally. It provides the submarine fleet sonar and combat systems installation services, including WSQ-9, Total Ship Monitoring System (TSMS), Advanced Rapid COTS Insertion (ARCI) and BYG-1. Furthermore, Huntington Ingalls is one of the only two private shipyards authorized by NAVSEA to perform SUBSAFE work on submarines.

What Favors Huntington Ingalls?

The United States along with many other nations is strategically strengthening its naval power by upgrading avast number of submarines due to the rising worldwide geopolitical tensions. In this backdrop, Huntington Ingalls enjoys a dominant position as a Navy contractor, as the demand for submarines remains high. In fact, more than 70% of the active U.S. Navy fleet consists of Huntington Ingalls ships and the shipbuilding giant is one of the only two contractors in the world equipped to build nuclear-powered submarines.

Furthermore, the fiscal 2021 defense budget proposal includes a spending provision of $4.4 billion specifically for a Columbia-class submarine and $4.7 billion for a Virginia-class submarine. As its Newport News Shipbuilding unit jointly builds these submarines with General Dynamics’ Electric Boat division, such stupendous budgetary amendments reflect solid growth prospects for the former in the days ahead.

What Lies Ahead?

Per the Research and Markets firm, the global submarine market is expected to see a 4% CAGR from 2020 to 2025. This indicates increased demand for different variants of submarines and their associated services, including the Columbia and Virginia-class submarines. As submarines are a vital part of the U.S. navy fleets, Huntington Ingalls is likely to benefit from such favorable market trends. These trends should also benefit other submarine makers like General Dynamics and MitsuBishi Heavy Industries (MHVYF - Free Report) globally.

Price Movement

In a year’s time, shares of Huntington Ingalls have lost 24.4% compared with the industry’s 30.5% decline.

Zacks Rank & A Stock to Consider    

Huntington Ingalls currently carries a Zacks Rank #3 (Hold).

A better-ranked stock in the same industry is Lockheed Martin Corp. (LMT - Free Report) , which holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Lockheed Martin delivered a positive earnings surprise of 5.56% in the last reported quarter. The company has a long-term earnings growth rate of 6.9%.

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