Huntington Ingalls Wins Some Contracts but Stock is Still Downgraded

by: Matthew Potter
September 30, 2011

Category: Business Line, Companies, General Dynamics, logistics, Northrop Grumman Corp., production program | RSS 2.0

Huntington Ingalls Industries (HII) which is formerly the shipbuilding part of Northrop Grumman (NOC) spun off earlier this year has received two new contracts recently. Unfortunately the stock, created as part of the separation from the large now Virginia based defense contractor, was downgraded by some analysts.

This week as part of an order for multiple new DDG-51 class missile destroyers Huntington Ingalls was awarded a contract worth almost $700 million to build DDG-114. It’s competitor, Bath Iron Works, owned by General Dynamics (GD) received a similar contract for DDG-115 worth slightly less as well as an option for one more ship, DDG-116. Huntington Ingalls had got the contract for DDG-113 the last one awarded in June. These two companies and their construction yards in Mississippi and Maine respectively have shared in production of the DDG-51 Arleigh Burke class since its inception back in the Nineties.

Earlier this month Huntington Ingalls also received a contract for support services from the Navy worth over $20 million. This went to their California subsidiary AMSEC LLC. The company also will build a new medium sized Coast Guard cutter, the WMSL-754, in a contract worth almost $500 million.

Despite all of this good news the former Northrop division’s stock was listed as a sell by Goldman Sachs which initiated coverage of the stock this week. This led to a fall of over six percent and a new low for the share price. Goldman is concerned that the decline in defense budget will hurt the company’s bottom line as well as the way the company financials are structured due to the spin off.

The Navy’s ship building budget is considered one of the areas that may see some big cuts over the next few years. If that is so then the Navy is going to have to choose what ships it wants between new aircraft carriers, submarines, amphibious warships and destroyers. The Navy currently is concentrating on building DDG-51 class with plans to integrate new technology that was supposed to go into the follow on DDG-1000 class ships. Due to cost and schedule issues only three of the newer ships will be built all by Bath.

Huntington Ingalls really only has one customer and if their available budget shrinks then the company’s opportunities do as well which is one of the reasons Goldman listed them the way they did. It may be a tough next few years for Huntington Ingalls who have already closed and consolidated some of the facilities they received as part of the separation from Northrop.

Share this:
Share this page via Email Share this page via Stumble Upon Share this page via Digg this Share this page via Facebook Share this page via Twitter

Tags: , , , , , , , , ,

| Give a Comment | trackback