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Huntington Ingalls Wins $936M Deal to Support DDG 51 Ships


Huntington Ingalls Industries, Inc. HII recently secured a modification contract to exercise the fiscal 2020 option for the construction of a USS Arleigh Burke DDG-51 class ship. Work related to the deal is scheduled to be over by June 2027.

Details of the Deal

Valued at $936 million, the contract was awarded by the Naval Sea Systems Command, Washington, D.C. The deal also includes options for engineering change proposals, design budgeting requirements and post-delivery availabilities on the DDG 51 ship.

The majority of the work will be executed in Pascagoula, MS.

Importance of DDG-51 Ships

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, Lockheed's LMT 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.

Huntington Ingalls’ business segment, Ingalls, has 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 enjoy solid demand, indicating the possibility of increased revenue recognition for the company in the coming days.

In first-quarter 2020, revenues at the Ingalls segment increaseda solid7.7% on a year-over-year basis, with Arleigh Burke-class DDG program being one of the primary growth drivers. We expect the latest contract win to help this business unit witness similar solid positive top-line growth in the upcoming quarters.

What’s Next?

Looking ahead, per Technavio, the global naval shipbuilding market is expected to witness a CAGR of 3% over the 2020-2024 period to reach $14.36 billion. This indicates increased demand for various assault ships, including DDG-51. Huntington Ingalls — being a major shipbuilding giant — is poised to benefit.

Another prominent military shipbuilder in the nation, General Dynamics GD should also enjoy the benefits of the aforementioned market expansion.

Price Movement

In a year’s time, shares of Huntington Ingalls have lost 20.9% compared with the industry’s 30.4% decline.

Zacks Rank & Stock to Consider

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

A better-ranked stock in the same industry is Embraer S.A. ERJ, which holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Embraer delivered a positive earnings surprise of 14.93% in the last reported quarter. The company has a long-term earnings growth rate of 17%.

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