Why Did BofA Downgrade Huntington Ingalls?

In a report published Tuesday, Bank of America Merrill Lynch analysts downgraded the rating on

to Neutral. The price target was lowered from $150 to $135. The analysts believe that there is limited upside to the stock at present. The analysts expect the company to invest 4 percent of its sales during 2016-2019 to position itself for the imminent multi-billion dollar contracts to be awarded by the DoE and US Navy. The management's investment strategy also includes higher initial investment associated with possible program awards. "However, considering the limited upside to sales and margin expansion, we expect HII's terminal growth rate to be slightly lower than other defense pure plays," the analysts said. The EPS estimate for 2015 had been lowered from $8.80 to $8.35 to reflect "continued oil and gas headwinds at UPI, within the "Other" segment." The analysts expect Huntington Ingalls to continue to witness losses in this segment during 2015 at the 1Q15 run rate.