Huntington Ingalls lands $9.5 billion in new orders for Navy warships

One for you, two for me. $6.75 billion for you…$9.5 billion for me.

For the longest time, the US Navy was dependent on just two major warship builders to build most of its fleet: General dynamics (NYSE: GD) and Huntington Ingalls (NYSE: HII). Essentially every submarine and destroyer in active service in the Navy today comes from one of these companies. Beyond these two classes, General Dynamics also builds refueling vessels and various other support vessels for the Navy, while Huntington Ingalls handles the construction of aircraft carriers and amphibious assault ships.

But while the Navy tries to split its shipbuilding contracts between these two giant defense contractors roughly down the middle, sometimes it doesn’t work out that way.

A shipbuilding duopoly for Uncle Sam

Last month, for example, the US Navy awarded General Dynamics a sole-source contract to build eight John Lewis-class fleet replenishment units — ships that refuel and supply other ships while they are underway. All of these new oils, T-AO 214 through T-AO 221, are scheduled for delivery by January 2035. The total value of that contract came to $6.8 billion — and Huntington Ingalls doesn’t asked for so much submit an offer for it. As the Pentagon explained in its contract announcement, “this contract was not competitively procured” — they handed it to General Dynamics on a silver platter.

Some Huntington Ingalls shareholders might have been a little upset about that, but they shouldn’t have been. Just weeks later, Huntington Ingalls landed two construction contracts of its own. At least one of those was also “not competitively procured,” and when combined, adds up to a lot more money than General Dynamics will get for the oils.

Huntington Ingall’s New Contracts

Valued at $5.8 billion, the first contract assigns Huntington Ingalls to design and build three “Flight II” amphibious transport docks for the Navy with hull numbers LPD 33, LPD 34 and LPD 35. The designation ” LPD”, these ships specialize in transporting troops, landing craft and helicopters to theaters of conflict, there to dump them on hostile shores.

Each Flight II ship will be able to carry hundreds of Marines and their equipment, along with a combination of up to four vertical takeoff and landing V-22 Osprey helicopters or aircraft, as well as a combination of up to two “LCAC” landing hovercraft and or up to 14 amphibious assault vehicles.

The story continues

Separately, Huntington Ingalls was awarded a $3.7 billion contract to begin work on building a new Flight I America-class amphibious assault ship. Also known as a Landing Helicopter Assault Ship (and LHA), this type of warship resembles a small aircraft carrier. According to Huntington Ingalls, in addition to carrying nearly three times the marine equipment of an LPD, a typical LHA could be equipped with five F-35B short takeoff and landing stealth fighters, a dozen V -22, half a dozen attack helicopters and half a dozen search, rescue and transport helicopters.

What it means for investors

Aside from the weaponry, what’s most interesting about these contracts for investors is that, combined, Huntington Ingalls was just awarded about 50% more contracts than General Dynamics won by two weeks earlier.

That alone sounds good enough, but the news gets even better when you realize that Huntington Ingalls is a much smaller (and more maritime-focused) company than General Dynamics, which is more of a defense contracting conglomerate with business operating on land, air. , and big. This increases the importance of winning a large contract for a (relatively) small company.

Huntington Ingalls has a market cap of just $10.2 billion — a tiny fraction of General Dynamics’ more than $83.4 billion market cap. Additionally, Huntington Ingalls has annual revenue of $11.8 billion, making it much cheaper than the defense contractor’s usual target valuation of 1.0 times sales. Huntington Ingalls is actually valued at just under 0.9 times sales — while General Dynamics has a valuation of 1.9 times sales today.

And now, in one day, Huntington Ingalls has won nearly an entire year’s worth of contracts.

Suffice to say, when evaluating defense stocks for future investment, Huntington Ingalls stock has just moved to the top of my list. I have nothing to say against General Dynamics as a company, but HII stock seems like a better value to me.

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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Huntington Ingalls Takes $9.5 Billion in New Orders for Navy Warships was originally published by The Motley Fool