Huntington's (HII) Unit Wins $2.2B Submarine Support Deal

Huntington Ingalls (NYSE:HII) Industries’ HII Newport News Shipbuilding division recently secured a $2.2-billion modification contract for supporting the construction of two Columbia-class ballistic missile submarines. The contract was awarded by General Dynamics’ GD Electric Boat division.

Per the deal terms, Huntington’s Newport News division will also provide continued design support efforts, as well as the construction and delivery of six module sections for each of the first two Columbia-class submarines. The module deliveries are scheduled to start in November 2022, with the last module to be delivered by January 2028.

Submarine Support Services by Huntington Ingalls

Huntington’s Newport News unit is a major contractor and shipbuilding partner in the Columbia-class program. The unit began advance construction activities on the lead ballistic missile submarine in May 2019, under contract with General Dynamics' Electric Boat.

Alongside building Columbia and Virginia-class submarines — two of the world’s newest ballistic missile submarines developed in partnership with General Dynamics — Huntington Ingalls offers submarine modernization and repair services at naval shipyards, fleet homeports and other locations globally.

Its Newport News unit further provides the submarine fleet sonar and combat systems installation services, including WSQ-9, Total Ship Monitoring System (TSMS), Advanced Rapid COTS Insertion (ARCI) and BYG-1. Furthermore, Huntington Ingalls is one of the only two private shipyards authorized by NAVSEA to perform Submarine Safety Program (SUBSAFE) work on submarines.

What Favors Huntington Ingalls?

The United States along with many other nations is strategically strengthening its naval power by upgrading a vast number of submarines due to the rising worldwide geopolitical tensions. In this backdrop, Huntington Ingalls enjoys a dominant position as a Navy contractor in the United States, with growing demand for submarines. In fact, more than 70% of the active U.S. Navy fleet consists of Huntington Ingalls ships and the shipbuilding giant is one of the only two contractors in the world equipped to build nuclear-powered submarines.

Furthermore, the fiscal 2021 defense budget includes a spending provision of $4.4 billion specifically for a Columbia-class submarine. With Huntington Ingalls’ Newport News Shipbuilding unit jointly building this submarine with General Dynamics’ Electric Boat division, such stupendous budgetary amendments reflect solid growth prospects for the former in the days ahead.

What Lies Ahead?

Per the Research and Markets firm, the global submarine market is expected to see a 4% CAGR from 2020 to 2025. This indicates increased demand for different variants of submarines and their associated services, including the Columbia and Virginia-class submarines. As submarines are a vital part of the U.S. navy fleet, Huntington Ingalls is likely to benefit from such favorable market trends. These trends should also benefit other submarine makers like General Dynamics, BAE Systems (OTC:BAESF) Plc BAESY and MitsuBishi Heavy Industries MHVYF, globally.

Zacks Rank & Price Movement

In three months time, shares of Huntington Ingalls, carrying a Zacks Rank #4 (Sell), have gained 7.9% compared with the industry’s 5% growth.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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