Huntington Ingalls Industries, Inc. - NYSE:HII - Comprehensive analysis
Wide-moat HII, a former subsidiary of Northrop Grumman, is the largest military shipbuilder in the US. While the company benefits from extraordinarily long planning horizons and budget visibility, small shifts in the timing of major programs can lead to lumpy quarterly results, which we believe have impacted the stock. Nevertheless, HII's strong ties to the US Department of Defense, its status as the sole provider of nuclear aircraft carriers and turbine-powered amphibious landing ships, and its position as one of only two producers of nuclear submarines for the US Navy position the company for recurring profits well into the future. The long-cycle shipbuilding business does not yield the highest margins in the defense contracting industry. However, it exemplifies the conditions that provide a durable competitive advantage and significant visibility into revenue and profitability for decades. The large shipbuilding sector offers extensive planning horizons and budget visibility, although minor timing shifts in major programs, such as aircraft carriers, can result in uneven quarterly results. We anticipate some potential volatility later this decade, contingent on upcoming revisions to US Navy budgets. The timing of work on two America-class amphibious assault ships expected to commence around 2027 may or may not offset the decline in work on the third Ford-class aircraft carrier, the Enterprise. This concern is more operational than financial and should not impact the company, provided it maintains sufficient visibility into similar work at each of its two shipyards as projects near completion. HII's products take years to build and are typically produced in small quantities. The potential for margin gains as the company progresses down the learning curve is limited, even as the government negotiates the price (and consequently, the available profit) of each ship upon agreement to purchase. This close relationship between the buyer and the company distinguishes HII from other defense contractors, as it is highly insulated from macroeconomic or market risks. In 2022, HII generated only $50 million in revenue from commercial customers out of nearly $11 billion in total revenue. Additionally, the Defense Department has a vested interest in maintaining multiple shipyards in operation and ensuring their financial viability. This policy results in a balanced distribution of work between HII and General Dynamics, mitigating risk and distributing rewards. While the firm may experience uneven revenue and profits in certain quarters and years due to the multiyear production cycles of its large products, we believe long-term investors will be rewarded, particularly with the anticipated growth in submarine and destroyer revenue.
Free evaluation through quantitative algorithms Huntington Ingalls Industries, Inc. - NYSE:HII
Growth-Scoring Model Detail
Total Revenue Growth Over Prior Year | 0.71 | Market 31 Sector 41 |
Gross Profit Growth Over Prior Year | -11.91 | Market 7 Sector 13 |
EBITDA Growth Over Prior Year | -11.44 | Market 10 Sector 20 |
EBITA Growth Over Prior Year | -14 | Market 12 Sector 23 |
EBIT Growth Over Prior Year | -13.86 | Market 14 Sector 25 |
Earnings from Cont. Ops. Growth Over Prior Year | -19.24 | Market 19 Sector 23 |
Net Income Growth Over Prior Year | -19.24 | Market 20 Sector 24 |
Normalized Net Income Growth Over Prior Year | -12.28 | Market 16 Sector 26 |
Diluted EPS before Extra Growth Over Prior Year | -18.21 | Market 20 Sector 24 |
A/R Growth Over Prior Year | -5.16 | Market 20 Sector 32 |
Inventory Growth Over Prior Year | 11.83 | Market 90 Sector 85 |
PPE Net Growth Over Prior Year | 3.68 | Market 57 Sector 53 |
Total Assets Growth Over Prior Year | 8.26 | Market 76 Sector 69 |
Tangible Book Value Growth Over Prior Year | 117 | Market 95 Sector 91 |
Common Equity Growth Over Prior Year | 14 | Market 76 Sector 73 |
Cash from Ops. Growth Over Prior Year | -59.48 | Market 3 Sector 6 |
CAPEX Growth Over Prior Year | 25.7 | Market 83 Sector 76 |
Dividend per Share Growth Over Prior Year | 4.58 | Market 52 Sector 73 |
Levered Free Cash Flow Growth Over Prior Year | -87.91 | Market 1 Sector 3 |
Unlevered Free Cash Flow Growth Over Prior Year | -80.52 | Market 2 Sector 4 |
Profitability-Scoring Model Detail
Gross Margin % | 12.57 | Market 10 Sector 11 |
SG&A Margin % | 6.88 | Market 30 Sector 19 |
EBITDA Margin % | 8.59 | Market 11 Sector 32 |
EBITA Margin % | 6.71 | Market 15 Sector 36 |
EBIT Margin % | 5.76 | Market 10 Sector 36 |
Earnings from Cont. Ops Margin % | 4.77 | Market 16 Sector 48 |
Net Income Margin % | 4.77 | Market 17 Sector 48 |
Net Income Avail. for Common Margin % | 4.77 | Market 17 Sector 49 |
Normalized Net Income Margin % | 3.48 | Market 12 Sector 43 |
Levered Free Cash Flow Margin % | 0.68 | Market 23 Sector 27 |
Unlevered Free Cash Flow Margin % | 1.19 | Market 21 Sector 25 |
Return on Assets % | 3.56 | Market 32 Sector 41 |
Return on Capital % | 5.56 | Market 35 Sector 47 |
Return on Equity % | 12.56 | Market 43 Sector 57 |
Return on Common Equity % | 12.56 | Market 42 Sector 58 |
Total Asset Turnover | 0.99 | Market 82 Sector 64 |
