The Austal Limited (ASX: ASB) share price surged higher this morning after the shipbuilder surprised the market with a profit upgrade.
The Austal share price rallied 10.6% to $3.35 at the time of writing – making it the best performer on the S&P/ASX 200 Index (Index:^AXJO).
The Mayne Pharma Group Ltd (ASX: MYX) share price and Northern Star Resources Ltd (ASX: NST) share price were in distant second and third spots with gains of around 6%-7% each.
Rare profit upgrade despite COVID-19
Just meeting guidance is already a cause for celebration, just look at the ALS Ltd (ASX: ALS) share price when it reported its profit results this week.
Austal did one better. The group said that its FY20 revenue will hit around $2 billion while its earnings before interest and tax (EBIT) will be "no less than $125 million".
This contrasts with its previous forecast of revenue of at least $1.9 billion and EBIT of no less than $110 million.
What's lifting Austal's share price
There are a few factors floating Austal's boat. Management pointed to continued strong performance across its business and the COVID-19 fallout having less of an impact on its operations than it originally feared.
The recent contract win to build new patrol vessels for the Australian government is also helping, along with confirmation that it will be receiving research and development tax credits in the US.
The fifth factor behind the upgrade is the exchange rate. The stronger for longer US dollar means its Australian dollar denominated results will get an extra lift.
Defensive growth
"Austal's continued strong performance across our shipyards in the USA, Australia, Philippines and Vietnam during the COVID-19 pandemic has provided confidence to increase the Company's FY2020 earnings guidance at this time," said its chief executive David Singleton.
It doesn't mean the coronavirus crisis won't drag on the group in the future periods, but at least Austal seems to have weathered the global shutdown well.
This is a much-needed shot in the arm for Austal's shareholders. The stock sank at the start of the month when the group said it failed to win a tender to build the Guided-Missile Frigates FFG(X) for the US Navy.
Should you buy Austal's shares?
While Austal's pipeline of work is still looking pretty full, winning that lucrative contract would have secured its earnings for many years to come.
However, the stock is still good value in my view even without FFG(X). The fact is, most brokers weren't expecting Austal to be successful anyhow, so not getting that contract doesn't mean a downgrade.
Austal remains one of my key industrial picks for 2020.
