At $3.4 billion apiece, a Landing Helicopter Assault ship has the capabilities of defending our country on a budget without compromising firepower…
So our President wants our military to be leaner yet meaner… easier said than done.
As countries like China and Russia actively bulk up their armed forces, Obama is headed in the opposite direction with his defense budget, which some say is putting American lives at risk.
Terrorism remains a serious threat to our country, and increased global trade has meant an ever-growing need to protect our assets and business interests located beyond our shores.
But a ballooning government debt means that something has got to give. And unfortunately, the Department of Defense (DoD) is one of the areas that Obama has decided to put under the microscope.
It’s a dangerous game of Russian roulette… one that could turn deadly if ever there comes a time that we are ill prepared to defend our great nation.
Strictly speaking, these budget cuts are going to force the DoD to make smarter, more strategic investments with their existing funds moving forward.
This may go a long way to explaining why the military’s biggest splurge in recent times has yet to make her maiden voyage.
With a hefty price tag of nearly $13 billion, the USS Gerald R. Ford super carrier is the Cadillac of aircraft carriers.
Built by Huntington Ingalls (NYSE:HII), the ship has a length of nearly four football fields and is capable of carrying more than 75 aircraft.
It’s truly an impressive sight to behold.
But it hasn’t come without some expensive setbacks.
Since construction of the warship began in 2008, costs have ballooned by 22% beyond its original budget.
What’s more, the ship has also been plagued by test failures.
Last month, the annual Director, Operational Test, and Evaluation (DOT&E) report cited 201 aircraft launch failures out of 1,967 launches.
A combination of budget constraints and a high failure rate has ultimately delayed the ship’s inaugural year of service from 2015 to beyond 2016 at the earliest, according to Chief of Naval Operations, Admiral Jonathan Greenert.
With taxpayers on the hook for $13 billion, and no ship to show for, Americans can’t help but wonder if such a behemoth is our government’s idea of money well spent.
A Cheaper Plan B
If the military were to somehow have another $13 billion lying around, they might want to consider building Landing Helicopter Assault ships (LHA) instead.
Even though it has “Helicopter” in its namesake, LHA’s are not just designed with people and supplies in mind.
In fact, its estimated that one of these ships can carry 30 aircraft including:
- A dozen MV-22B Osprey transports.
- Six F-35B Lightning IIs.
- Four CH-53K heavy transport helicopters.
- Seven AH-1Z attack helicopters.
- And a pair of MH-60S Seahawks.
Vice versa, the ship could also carry up to 20 F-35B Lightning II fighter jets (which is nearly as many as China’s full-size Liaoning carriers).
Plus, at a cost of $3.4 billion, the DoD could deploy three LHA’s and still have around $2.6 billion left over to put towards other critical defense requirements.
Huntington Ingalls would also be the contractor for these ships, which would mean a win-win situation for both client and supplier.
HII had a solid 2013 as both margins and EPS improved. In their November earnings report, operating margins jumped from 4.1% a year ago to 7.8% while its EPS of $1.36 far exceeded analyst estimates of $0.82.
Management stated that their healthy backlog of ship contracts will enable them to achieve a 9% operating margin by 2015.
As investors await HII’s February 27th earnings announcement, analysts have raised their estimates to $1.20 – $1.22 per share with 2014 potentially hitting $4.51 to $4.60 per share.
For investors who like companies that profit each quarter, HII has a good chance of topping analyst projections once again.
Having just doubled their dividend payout in November from $0.10 to $0.20, we’re likely to see another $0.20 go out to shareholders.
If there’s any defense company out there who can do more with less, count on HII to make that happen.
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