The military industrial complex is a very complicated business sector. Companies that cater to the military of the United States and its allies face giant windfalls when contracts are awarded, which also support thousands of high-paying jobs. They can also suffer years of stagnation when budget cuts and order deferrals occur. Now it seems as though Huntington Ingalls Industries Inc. (NYSE: HII) has a potential game-changer on its hands.
The ship-building giant confirmed late in the week that it received a $3.35 billion contract award for the detail design and construction of the nuclear-powered aircraft carrier John F. Kennedy. This is to be the second ship in the Gerald R. Ford class of carriers, and the work is going to take place at its Newport News Shipbuilding division.
As far as how the $4 billion comes up, that is because Huntington Ingalls also announced that it received a $941 million modification to an existing construction preparation contract, which is to continue material procurement and manufacturing in support of the ship.
What matters here is that this sets Huntington Ingalls to greatly benefit from the third Gerald Ford class of carriers ahead. While it was expected that the company would win this award, this may have just solidified a base to its revenues for the coming years.
The Huntington Ingalls press release indicates that this contract work will include the ship construction, as well as ship design activities, engineering services and the procurement of materials and hardware to support construction and logistics activities.
As far as how this will pan out, John F. Kennedy’s first steel was cut in December 2010. Over 450 of the ship’s 1,100 structural units have been constructed since that time, under the construction preparation contract that will be used to start erecting the ship’s hull. Huntington Ingalls further said that the ship’s keel-laying ceremony is scheduled for August 22.
The company’s quote from the release said:
These awards are important, not only for the shipbuilders at Newport News Shipbuilding, but for the thousands of suppliers nationwide who provide the steel, pipe, cable, paint and equipment that goes into this cutting-edge defense platform—and for the sailors who will sail her. We look forward to continuing to implement lessons learned from the first-of-the-class ship, Gerald R. Ford, in the construction of Kennedy and delivering the next great carrier to the Navy.
Huntington Ingalls employs approximately 38,000. The company’s market capitalization (stock value) is $5.8 billion. After revenue of almost $7 billion in 2014, Thomson Reuters has the consensus revenues targeted as virtually flat in 2015 and then growing to almost $7.1 billion in 2016. The company is also valued at roughly 14 times expected 2015 earnings per share, but its dividend yield is rather low at 1.3%.