An important part of conducting due diligence is keeping up with the companies you find yourself invested in, or are considering a position in. Since the end of June, Huntington Ingalls’ share value as been recovering nicely. My due diligence report still applies, and is linked at the end of this article. These are simply further updates that support my opinion of HII being a great investment. The company reports earnings on August 3, and keeping an eye on contracts helps one to infer the results of such a future report.

Recent Contracts

June 16:
Huntington Ingalls Industries, the builders of the America-class amphibious assault ships of the U.S. Navy, have secured a $3,013,903,706 fixed-price-incentive modification to contract N00024-16-C-2427. This contract is for the detail, design, and construction of Landing Helicopter Assault (LHA) Replacement (LHA(R)) Flight 1 Amphibious Assault Ship (LHA-8), the USS Bougainville.

A fixed price incentive contract is a set price that a contracting company needs to set out to beat, as if they come in over-budget, they have to absorb the excess as a loss. If the contractor comes in under the fixed price, however, the final profit negotiation results in a larger profit than otherwise expected.

The USS Bougainville
The USS Bougainville will be the second ship to carry that name, and is expected to be completed by January 2024. Similar in size and shape to her sister ship, the USS America, (pictured above), USS Bouganville is based What sets the LHA-8 apart is that it will have a well deck as earlier amphibious assault ships have.

Image of Landing craft entering the USS Green Bay in Kinbu Bay, Japan, March 28, 2017.
Above: Landing craft entering the USS Green Bay in Kinbu Bay, Japan, March 28, 2017.

A well deck is like an amphibious hangar, allowing for entry and exit of landing craft. Unfortunately, this feature takes space, and as such the USS Bouganville will have a smaller aircraft hangar than its sister ships. More room on the flight deck, however, in order to handle more VTOL [Vertical Take Off and Landing] aircraft maintenance needs.

She will also be the first of her generation to be built with a reinforced main deck, rather than needing to be retrofitted. This will better deal with the forces exerted on it by aircraft such as the marine variant of the joint strike fighter, the F-35B Lightning II.

June 27:
A fixed-price-incentive-firm target modification to a previously awarded contract N00024-13-C-2307. Price is considered sensitive information and is left undisclosed. The contract is for incorporation of the Flight III baseline on Arleigh Burke-class Destroyer USS Jack H. Lucas (DDG 125).  Flight III will incorporate the SPY-6 (Air and Missile Defense Radar (AMDR)) and upgrade the electrical power and cooling capacity plus additional associated changes.

June 30:
A $219,377,731 cost-plus-fixed-fee, firm-fixed-price modification to a previously awarded contract N00024-15-C-4301. This contract is for engineered overhaul ability, including the maintenance, repair, test, routine work and growth work on USS Columbus (SSN 762).

A cost-plus-fixed-fee is a contract that is paid out as reimbursement for excessive amounts. That’s why this is a modification to a previous contract, rather than completely new. The price is fixed at the inception of the contract, however it can be changed later based on the work that needed to be done. The USS Columbus is a Los Angeles-class submarine.

A $218,102,150 cost-plus-fixed-fee, not-to-exceed modification to a previously awarded contract N00024-16-C-2431. This contract is for the procurement of long lead time material and advance construction activities in support of LPD 29. The work for this modification is expected to be completed in February of 2018.

For those that don’t know, lead time is the time that passes between the start and finish of a manufacturing process. “Long lead time material and advance construction activities”, in this case, is referring to the procurement of materials and equipment necessary to build LPD 29.

Above: Amphibious transport dock ship Pre-Commissioning Unit New York (LPD 21) arrives at her home port of Naval Station Norfolk, Va., for the first time Oct. 22, 2009. (U.S. Navy photo by Mass Communication Specialist 1st Class Julie R. Matyascik/Released)

LPD 29 is going to be an amphibious transport dock- a ship that is designed to transport marines and their equipment in the event of an amphibious assault. LPD are about half the size of a comparable LHA, carrying about half the personnel as well. While LPD do have a helicopter hangar, their primary focus is on their amphibious assault vehicles. This contract is for the advanced planning, gathering of materials and initial construction of such a ship.

July 5:
A $9,900,000 modification to a previously awarded contract, N00024-14-C-2111. This contract is for the advance planning of refueling complex overhaul of USS George Washington (CVN 73). The USS George Washington is a Nimitz-Class Aircraft Carrier. This is considered a maintenance contract.

 

Huntington Ingalls Industries

Since the end of June, Huntington Ingalls’ share value as been recovering nicely. These new contracts rolling out further bolster their already decent financial position. Having two shipyards at their disposal with a cumulative 210+ years of use and over 1300 ships built in that time, Huntington Ingalls holds a niche like no other ship builder. Read more about it in my Due Diligence report, here.

Disclaimer

As of June 19, 2017, I continue to hold a small position in Huntington Ingalls Industries, at approximately $186 per share. I release this information for the sake of transparency. My opinions are entirely my own and may or may not reflect the opinions of my peers on TickHounds. I am not being compensated for sharing my due diligence in any way other than what tips may be accrued.

 

Sources

USS America, U.S. Navy photo by Petty Officer 3rd Class Timothy Schumaker.
USS Green Bay, Navy photo by Petty Officer 2nd Class Kaleb R. Staples.
USS New York LPD 21, Department of Defense Photo
Contract Information: June 16
Contract Information: June 27
Contract Information: June 30
Contract Information: July 5