Huntington Ingalls Scores Nuke Revenue

Here's a story about a government contractor that caught my eye.  Huntington Ingalls Industries (HII), which spun off from Northrop Grumman (NOC) this past March, just landed a decent-sized contract to maintain prototype nuclear reactors for a U.S. Navy research program.  The minimum they'll earn is about $40mm per year with the base contract and another $80mm per year with the option.  Based on gross revenue of about $3B per year (an estimate based on six months' of data from their 10-Qs), that will amount to a topline increase of 1.33% to 4% depending on whether they fully earn that option.  That's not bad, but any contribution to earnings will depend on the cost of servicing this contract.  HII's ROE is clocking in at a respectable 12.73% but ROA lags at 2.75%, indicating that HII is not efficient at using its existing assets to generate earnings. 

Here's another tiny feather in HII's cap.  Its Continental Maritime of San Diego subsidiary was awarded OSHA's star status.  Nice work, folks.  Now translate that into lower costs for the contracts you service and you'll really impress me. 

Full disclosure:  No position in HII or NOC at this time.