Huntington Ingalls Industries Inc.
) was awarded a $7.2 million contract modification to a previously
awarded contract (N00024-06-C-2304) for research, development,
test, and technical services in support of the DDG 1000
Zumwalt-class destroyer program.
DDG 1000 technical services include technology development,
analytical modeling, qualification of materials, potential
design/process improvements and design excursions.
Work on the contract will be performed in Pascagoula and Gulfport
in Mississippi and is expected to be completed by September
2013. Naval Sea Systems Command, Washington, D.C., is the
Going forward, the tepid recovery in the U.S. economy raises fears
of further cutbacks in future defense budgets. We expect the
Euro-area crisis to continue to impact the financial markets.
Slower growth implies a significantly higher unemployment rate. We
now see greater downside risks for the U.S. economy in the near
term, which may affect government spending on defense.
Finally, the apprehension over cutbacks is fueled by Defense
Secretary Leon Panetta's ambitious plans to save $487 billion over
the next ten years. The heightened uncertainty may contribute to
sharply lower equity prices and wider risk spreads. We feel this
will invariably lead to slow consumer spending, and the general
pull-back from risk may affect government spending on defense.
HUNTINGTON INGL (HII): Free Stock Analysis
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However, our bullishness for Huntington Ingalls remains unperturbed
with the recently reported strong second quarter numbers. Sales
rose to $1.72 billion from $1.56 billion in the year-ago quarter.
The increase was attributed in part to higher sales of amphibious
assault ships. In that quarter the company's performance reflected
the strong execution of existing contracts and a steady ramp toward
higher margins. As a result, earnings per share rose to $1.00 from
80 cents in the year-ago period.
Huntington Ingalls was also proactive in booking new awards to
cement its performance. The value of new contract awards won during
the three-month period ended June 30, 2012, was approximately $2.5
billion. Significant new awards during the second quarter of 2012
included contracts for the detail design and construction of LHA-7
Tripoli, advance procurement for construction of LPD-27 and
planning efforts for the CVN-72 USS Abraham Lincoln refueling
complex overhaul. We currently have a long-term Outperform
recommendation on the stock.
Presently, Huntington Ingalls holds a short-term Zacks #2 Rank
(Hold), primarily due to the low-level of current valuation
vis-à-vis peers like
Lockheed Martin Corporation
Northrop Grumman Corporation
). Year-to-date the stock rose more than 29% and is now hovering
near its 52-week high.
Huntington Ingalls Industries designs, builds and maintains nuclear
and non-nuclear ships for the U.S. Navy and Coast Guard and
provides after-market services for military ships around the globe.
The company also develops and produces warships, including
destroyers, amphibious transport dock ships, and national security
cutters for the surface Navy fleet, U.S. Coast Guard, U.S. Marine
Corps, and foreign and commercial customers. Additionally, the
company provides complex nuclear project management; safe
management and handling of radiological materials and waste; and
nuclear facility construction, commissioning, operations, and