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Anyone have access to GS sell side reports?


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I'm looking for the coverage on Huntington Ingalls that came out a week or so back.  If you could post it here or email me I'd appreciate it.


HII has taken a beating, from what I can gather the GS analyst thinks that the Navy is going to completely gut the ship building program.  I've taken a look at the budget cut proposals and nothing is as dire as GS predicts, so I'd like to see some of their reasoning.



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We profiled HII in the September issue of The Manual of Ideas.  We're attaching a couple of files that might be helpful.  Here is also Ravi Nagarajan's post in our online members area:


Huntington Ingalls is one of those companies where it is difficult to separate analysis of the merits of the business independently from the political/macro factors impacting the company.  Of course, this is due to the dependence the company has on naval procurement and the risk of significant military budget cuts going forward. In particular, the outcome of the "super-committee" negotiations now underway to identify additional budget cuts could either involve additional military cuts explicitly agreed to or an absence of agreement by year-end could result in "triggered" cuts to the military.


Balancing the near term procurement risks is the fact that the U.S. Navy has a very long term procurement cycle known as a "30 Year Plan" which normally provides great visibility into what ship builders can expect.  Although the 30 year plan is still subject to annual congressional appropriations and the quadrennial defense review, certain programs seem very unlikely to be cut.  For example, the aircraft carrier program has a very clearly defined cycle in which a new carrier is commissioned every five years just in order to keep the overall fleet of eleven carriers intact over time.  This is because each nuclear powered carrier has a well defined fifty year lifespan (including one refueling and reconditioning process after 23 years in service).  In order to continue to project naval power going forward, commissioning a new carrier every five years is required.  In addition, refueling is not an optional process, nor is decommissioning and disposal of spent nuclear fuel.  (As an interesting aside, China has recently deployed its first aircraft carrier and although it has very limited capability future carriers will be much more capable.  To keep projecting power in Asia, the US must maintain aircraft carriers in the region).


Due to the importance of the aircraft carrier program (as well as the fleet of nuclear submarines) and the somewhat non-discretionary nature of these programs, the Newport News segment of Huntington Ingalls seems well protected.  Newport is the only manufacturer of aircraft carriers and one of two manufacturers of nuclear submarines.  This seems like a significant "moat".


The Gulf Coast (Ingalls) operation has less of a moat since it produces smaller non-nuclear ships that may be subject to more competition and/or more significant budget cuts.  In addition, Ingalls has not performed as well in the past, although a turnaround appears to be in progress.



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Thanks for the two files, very good information confirming my original thesis.  It seems like right now there is so much fear in the market over the cuts, yet when I looked at the actual worst case cuts proposed it seems the selloff is more than overdone.


I was just curious if the GS analyst had anything more than was was already proposed, some new information.  HII seems like the type of stock that has some career risk attached to it for Wall Street investors, creating a nice opportunity for everyone else.

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