Military shipbuilder Huntington Ingalls Industries, Inc. ‘s HII business unit, Newport News Shipbuilding, recently secured a contract for conducting engineered overhaul of fiscal 2019 USS Boise (SSN 764), from the Naval Sea Systems Command, Washington, D.C. Work related to this deal is scheduled to be over by February 2021.
Details of the Deal
Valued at $59.8 million, this assignment will be carried out at the company’s shipbuilding yard located at Newport News, VA. Notably this contract has a potential to reach a cumulative value of $385.7 million, if on exercise of options included in this deal.
Per the terms of the agreement, Huntington Ingalls will be engaged in planning and execution of the overhaul process. Fiscal 2018 other procurement (Navy) funds will be utilized to complete the task.
A Brief Note on USS Boise
USS Boise (SSN 764) is a Los Angeles-class nuclear-powered fast attack submarine. Notably, the Los Angeles-class forms the backbone of the U.S. Navy’s submarine force.
Nuclear Submarines & the United States
To counter the rising geopolitical tensions across the world, the U.S. government has been designing submarines for decades. Notably, the modern-day nuclear-powered submarines are markedly better than the diesel-engine ones that had to make multiple stops for refueling.
In the United States, the market for nuclear submarine is a consolidated one, operated by two prime players – Huntington Ingalls and General Dynamics Corporation GD . As a result both companies enjoy a large share of the market as well as high profit margins.
It is imperative to mention in this context that recently the U.S. administration has been allotting significant provision for nuclear submarines in the nation’s defense budget, thereby encouraging submarine-manufacturers like Huntington Ingalls in boosting production. Evidently, the fiscal 2017 budget proposal allocated $8.1 billion for submarines.
How Will the Deal Benefit Huntington?
Huntington’s Newport News division enjoys one of the leading positions in the designing and building nuclear-powered submarines for the U.S. Navy. As of December 2016, Newport News delivered 59 submarines to the U.S. Navy which comprised 45 fast attack and 14 ballistic missile submarines. Moreover, of the 52 nuclear-powered fast attack submarines currently in active service, 25 were delivered by Newport News.
The global submarine market is expected to grow at a CAGR of 5% and to reach a value of $27.6 billion from 2016 to 2021, as forecasted by Technavio market research analysts. Considering this and the aforementioned developments, we can expect Huntington Ingalls to win more such submarine-related contracts going ahead, thereby boosting its profit margin.
Shares of Huntington have rallied 47.9% over a year, outperforming the industry ‘s 45.3% gain. The company is the sole designer and manufacturer of nuclear powered aircraft carriers in the U.S. Over 70% of the active U.S. Navy fleet consists of Huntington Ingalls ships and the company continues to enjoy strong order growth from the U.S. Navy. This in turn may have led to the company’s aforementioned outperformance.
Zacks Rank and Other Stocks to Consider
Huntington Ingalls currently carries a Zacks Rank #2 (Buy).
A few other top-ranked stocks in the aerospace-defense space are The Boeing Company BA and Northrop Grumman Corporation NOC , both of which carry a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here .
Boeing topped the Zacks Consensus Estimate in the past four quarters with an average of 13.67%. The company has a solid long-term growth earnings growth of 13%.
Northrop Grumman surpassed the Zacks Consensus Estimate in the last four quarters with an average of 12.60%. The company has a solid long-term growth earnings growth of 7.5%.
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