Huntington Ingalls to Buy UPI - Analyst Blog

Huntington Ingalls Industries HII has entered into a binding agreement to acquire Houston-based UniversalPegasus International Holdings UPI, a supplier of a wide range of engineering and project management services to the energy industry across the world. The financial terms of the transaction were not disclosed. The transaction is scheduled to close in Jun 2014.

Huntington Ingalls, which primarily deals with the supply of nuclear and non-nuclear ship to the U.S. Navy and Coast Guards, looks to consolidate its presence in the oil and gas market through this acquisition. UPI with 50 years of experience in the energy infrastructure market is known for its engineering, designing, inspection and construction management services to domestic and international customers.

This is the company's second strategic acquisition in the energy sector in 2014. In January, Huntington Ingalls acquired Broomfield, CO-based S.M. Stoller Corp., which provides environmental, nuclear and technical consulting and engineering services to the Department of Energy and other customers. Both these deals point to the company's focus of diversifying into the energy business from its already entrenched presence in military shipbuilding.

Huntington Ingalls posted an impressive performance in the first quarter 2014 despite threats of sequestration and budget cuts. The company delivered a 10.4% positive earnings surprise in the first quarter driven by solid performance from its Ingalls Shipbuilding and Newport News Shipbuilding segments. The company also surpassed the Zacks Consensus Estimate in the last four quarters with an average beat of 28.61%.

Although budget sequestration has weighed upon defense contractors in general, Huntington Ingalls, a Zacks Rank #2 (Buy) company, has clinched a high-value contract in partnership with defense major General Dynamics Corp. GD. The company had a total backlog of $18.7 billion at the end of the first quarter 2014, of which $13.0 billion was funded.

Investors interested in the aerospace and defense industry may also consider stocks like The Boeing Co. BA and Lockheed Martin Corp. LMT. Both hold a Zacks Rank #2 (Buy).