Why is the Austal share price sailing 28% higher today?

The Austal Limited (ASX: ASB) share price is on the move during Friday morning trade.

This comes after the shipbuilder announced it has won a new contract with the United States Coast Guard (USCG).

At the time of writing, Austal shares are swapping hands at $2.30 apiece, up 27.78%.

What’s the details of the contract?

According to its release, Austal revealed it has been awarded a potential US$3.3 billion (A$4.35 billion) contract from the USCG.

Under the deal, Austal will design and construct up to 11 Offshore Patrol Cutters (OPC) at its steel shipbuilding facility in Mobile, Alabama.

Construction of the first vessel is expected to commence next year, with an option for another 10 ships to be built.

The Coast Guard’s 110 metre steel OPCs will provide a crucial capability for the USCG in conducting a variety of missions. This includes law enforcement, drug and migrant interdiction, and search and rescue operations.

Management noted that although the contract has been awarded in FY23, it will positively impact some of Austal’s FY22 EBIT.

As such, the company now expects its FY22 EBIT to be higher than the previously forecast $107 million.

However, the exact figure is yet to be quantified but will be provided in due course.

Evidently, this appears to have excited investors, sending the Austral share price to an 11-month high.

Austal CEO, Paddy Gregg welcomed the foreseeable contract, saying:

The United States Coast Guard’s new Offshore Patrol Cutters are an outstanding opportunity for Austal USA to further demonstrate the shipyard’s new steel shipbuilding capability; based on years of proven construction experience through the delivery of the LCS and EPF programs for the United States Navy.

Austal share price summary

Despite today’s euphoric gains, Austal shares have continued to move in circles over the past 12 months. Its shares are up around 11% for the period.

On valuation grounds, Austal commands a market capitalisation of roughly 669.44 million.

The post Why is the Austal share price sailing 28% higher today? appeared first on The Motley Fool Australia.

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Motley Fool contributor Aaron Teboneras has no position in any of the stocks mentioned. The Motley Fool Australia’s parent company Motley Fool Holdings Inc. has positions in and has recommended Austal Limited. The Motley Fool Australia has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy. This article contains general investment advice only (under AFSL 400691). Authorised by Scott Phillips.

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