Huntington Ingalls Industries, Inc. HII recently secured a multiyear contract for manufacturing six DDG 51 class ships. Work related to the deal is scheduled to be over by April 2029.
Details of the Deal
Valued at $5.1 billion, the contract was awarded by the Naval Sea Systems Command, Washington, D.C. The deal includes options for engineering change proposals, design budgeting requirements, and post-delivery availabilities on the awarded ships, which if exercised, would bring the cumulative value of this contract to $5.3 billion.
Majority of the work will be executed in Pascagoula, MS. The company will utilize fiscal 2018 shipbuilding and conversion (Navy) fund to perform the task.
A Brief Note on DDG-51
The DDG 51 Arleigh Burke-class is a multi-mission warship. It features an advanced anti-submarine warfare system, the AEGIS combat system, the Vertical Launching System, two embarked SH-60 helicopters along with advanced anti-aircraft missiles and land-attack missiles. Impressively, the warship offers protection against a wide range of threats, including ballistic missiles.
Our View
Huntington Ingalls’ business segment, Ingalls, has an in-depth experience in manufacturing amphibious assault and expeditionary ships for the U.S. Navy. Being the U.S. Navy's primary surface combatant, the Aegis-equipped Arleigh Burke class (DDG 51) destroyers enjoys solid demand, indicating at the possibility of increased revenue recognition for the company in the coming days.
In second-quarter 2018, revenues at the Ingalls segment decreased on a year-over-year basis due to lack of sufficient contract from the Pentagon. We may expect the latest contract win to help this business unit rebound on positive top-line growth trajectory in the third quarter.
Furthermore, President Trump proposed fiscal 2019 defense budget that includes an investment plan of $179.1 billion for the U.S Navy. In particular, this investment includes spending provision of $6 billion for procuring 3 DDG 51s compared with $4 billion allotted in the prior-year budget. Considering such expansionary budgetary revisions, Huntington Ingalls, the largest military shipbuilder in the United States, is expected to win similar contracts from the U.S. Navy moving ahead.
Price Movement
In a year’s time, shares of Huntington Ingalls have gained 14.7% compared with the industry’s 22.1% rally. The underperformance may have been caused by intense competition that the company faces in the aerospace-defense space.
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Zacks Rank & Other Stocks to Consider
Huntington Ingalls currently carries a Zacks Rank #2 (Buy). A few better or similar-ranked stocks in the same sector are Aerojet Rocketdyne Holdings AJRD, AeroVironment AVAV and Engility Holdings EGL. While Aerojet Rocketdyne and AeroVironment sport a Zacks Rank #1 (Strong Buy), Engility carries the same bullish Zacks Rank as Huntington Ingalls. You can see the complete list of today’s Zacks #1 Rank stocks here.
Aerojet Rocketdyne came up with an average positive earnings surprise of 9.27% in the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings moved north 30.9% to $1.27 over the last 90 days.
AeroVironment delivered an average positive earnings surprise of 365.27% in the preceding four quarters. The Zacks Consensus Estimate for 2018 earnings climbed 23% to $1.36 over the last 90 days.
Engility delivered an average positive earnings surprise of 19% in the preceding four quarters. The Zacks Consensus Estimate for 2018 earnings climbed 16.1% to $2.02 over the last 90 days.
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