Unveiling Huntington Ingalls Industries (HII)'s Value: Is It Really Priced Right? A Comprehensive Guide

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Introduction: A Snapshot of Huntington Ingalls Industries (HII, Financial)

Huntington Ingalls Industries Inc (HII) is a renowned all-domain defense partner, specializing in the creation and delivery of powerful and survivable naval ships and technologies. These assets are instrumental in safeguarding America's seas, sky, land, space, and cyber domains. The company operates under three segments: Ingalls, Newport News, and Mission Technologies, with the Newport News segment generating the majority of the company's revenue.

As of September 06, 2023, the company's stock price stands at $209.2, with a market cap of $8.30 billion. Despite a daily loss of -3.65%, the company has seen a 3-month gain of 0.29%. The question on most investors' minds is whether the stock is fairly valued. This article aims to answer that question and provide an in-depth analysis of Huntington Ingalls Industries' valuation.

Here is the income breakdown of Huntington Ingalls Industries:


Understanding the GF Value

The GF Value is a proprietary measure of a stock's intrinsic value. This measure is derived from historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at.

According to the GF Value calculation, Huntington Ingalls Industries' stock appears to be fairly valued. The GF Value is GuruFocus' estimate of the fair value at which the stock should be traded. If the price of a stock is significantly above the GF Value Line, it is overvalued, and its future return is likely to be poor. Conversely, if it is significantly below the GF Value Line, its future return will likely be higher.

Given that Huntington Ingalls Industries is fairly valued, the long-term return of its stock is likely to be close to the rate of its business growth. Below is the GF Value chart of Huntington Ingalls Industries:


Financial Strength of Huntington Ingalls Industries

Investing in companies with low financial strength could result in permanent capital loss. Therefore, it is crucial to review a company's financial strength before deciding whether to buy shares. Looking at the cash-to-debt ratio and interest coverage can give a good initial perspective on the company's financial strength. Huntington Ingalls Industries has a cash-to-debt ratio of 0.1, which ranks worse than 84.38% of 288 companies in the Aerospace & Defense industry. Based on this, GuruFocus ranks Huntington Ingalls Industries's financial strength as 5 out of 10, suggesting fair balance sheet.

This is the debt and cash of Huntington Ingalls Industries over the past years:


Profitability and Growth of Huntington Ingalls Industries

Companies that have been consistently profitable over the long term offer less risk for investors who may want to purchase shares. Higher profit margins usually dictate a better investment compared to a company with lower profit margins. Huntington Ingalls Industries has been profitable 10 over the past 10 years. Over the past twelve months, the company had a revenue of $10.90 billion and Earnings Per Share (EPS) of $13.01. Its operating margin is 4.62%, which ranks worse than 53.9% of 282 companies in the Aerospace & Defense industry. Overall, the profitability of Huntington Ingalls Industries is ranked 8 out of 10, which indicates strong profitability.

One of the most important factors in the valuation of a company is growth. Long-term stock performance is closely correlated with growth according to GuruFocus research. Companies that grow faster create more value for shareholders, especially if that growth is profitable. The average annual revenue growth of Huntington Ingalls Industries is 7.4%, which ranks better than 68.08% of 260 companies in the Aerospace & Defense industry. The 3-year average EBITDA growth is 7.5%, which ranks better than 65.35% of 228 companies in the Aerospace & Defense industry.

ROIC vs WACC of Huntington Ingalls Industries

One can also evaluate a company's profitability by comparing its return on invested capital (ROIC) to its weighted average cost of capital (WACC). Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. If the return on invested capital exceeds the weighted average cost of capital, the company is likely creating value for its shareholders. During the past 12 months, Huntington Ingalls Industries's ROIC is 3.92 while its WACC came in at 5.31.

The historical ROIC vs WACC comparison of Huntington Ingalls Industries is shown below:



In summary, the stock of Huntington Ingalls Industries (HII, Financial) gives every indication of being fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 65.35% of 228 companies in the Aerospace & Defense industry. To learn more about Huntington Ingalls Industries stock, you can check out its 30-Year Financials here.

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I/We may personally own shares in some of the companies mentioned above. However, those positions are not material to either the company or to my/our portfolios.