Northrop Grumman Corporation (NOC) has successfully spun off its Shipbuilding unit by issuing shares of the new company to its shareholders. The shares of the new company called “Huntington Ingalls Industries Inc.” were issued in the ratio of 6:1, meaning each shareholder received one share of Huntington Ingalls for every six shares of Northrop they held.

The new company will begin trading on the New York Stock Exchange effective March 31, 2011, using the symbol “HII”. Huntington Ingalls, which as Northrop’s unit had 2010 sales of $6.7 billion, will operate major shipyards in Louisiana, Mississippi and Virginia.

In July 2010, Northrop Grumman announced the initial separation plans of the Shipbuilding segment, and in November 2010 had suggested that the spun-off unit would be christened Huntington Ingalls Industries Inc.

At the same time in July 2010, Northrop also announced the closure of its Avondale shipbuilding facility in Louisiana effective 2013. Avondale currently employs about 4,600 workers.

Thus, following the closure of the Avondale facility in 2013, Huntington Ingalls will operate major shipyards at Newport News, Virginia, and Pascagoula, Mississippi. These facilities employ about 38,000 people.

We note that two ships in the LPD-17 series of Navy amphibious assault ships, under construction at the Avondale facility, are currently the last projects slated for the yard. Following the closure of the facility, the order for the final two ships in that series will be built at Pascagoula. The company said there is no major Navy shipbuilding project to replace the LPD-17 in the works now.

Northrop is one of the Navy’s main sources of submarines, aircraft carriers and other warships. About 20% of its revenue comes from this division. The unit has struggled under the slowdown in shipbuilding contracts and has faced increased competition from rivals like General Dynamics Corporation (GD).

Based in Los Angeles, California, Northrop Grumman Corporation provides products, services and solutions in information and services, aerospace, electronics, and shipbuilding to the military, government and commercial customers in the United States and internationally. The company mainly competes with The Boeing Co. (BA) and Lockheed Martin Corporation (LMT).

Northrop Grumman offers a strong program portfolio positioned to take advantage of growth in the defense space, an improving balance sheet and an ongoing share repurchase program. However, this is offset by apprehension regarding defense cutbacks on high-cost platform programs, over-exposure to the DoD budget, lower backlog, cost over-runs and substantial exposure to missile-defense-related programs.

The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

 
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