As of October 09, 2023, Huntington Ingalls Industries Inc (HII, Financial) recorded a daily gain of 7.32%, with a 3-month loss of -9.84%. The company's Earnings Per Share (EPS) stands at 13.01. The critical question to answer is: Is the stock Fairly Valued? This article endeavors to provide a comprehensive valuation analysis of Huntington Ingalls Industries, inviting readers to engage with the subsequent in-depth examination.
Company Overview
Huntington Ingalls Industries is the largest independent military shipbuilder in the U.S. The company was spun off from Northrop Grumman in 2011 and operates three segments. The Ingalls segment produces non-nuclear-powered ships, and the Newport News segment is the only producer of Gerald Ford-class aircraft carriers and a major subcontractor on Virginia and Columbia-class nuclear submarines. The Mission Technologies segment produces uncrewed sea vessels and provides a range of IT services to U.S. government agencies.
At its current price of $217.35 per share, Huntington Ingalls Industries has a market cap of $8.70 billion. The GF Value, an estimation of fair value, is $232.38. This comparison between the stock price and the GF Value sets the stage for a deeper exploration of the company's value.
Understanding the GF Value
The GF Value is a proprietary measure that represents the current intrinsic value of a stock. It is calculated based on historical multiples, a GuruFocus adjustment factor based on the company's past returns 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.
If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher. For Huntington Ingalls Industries (HII, Financial), the stock is believed to be fairly valued. As a result, the long-term return of its stock is likely to be close to the rate of its business growth.
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Assessing Financial Strength
Companies with poor financial strength pose a high risk of permanent capital loss. To avoid this, an investor must review a company's financial strength before deciding to purchase shares. Both the cash-to-debt ratio and interest coverage of a company are great ways to understand its financial strength. Huntington Ingalls Industries has a cash-to-debt ratio of 0.1, which ranks worse than 83.96% of 293 companies in the Aerospace & Defense industry. The overall financial strength of Huntington Ingalls Industries is 6 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, particularly those with consistent profitability over the long term, poses less risk. A company with high profit margins is also typically a safer investment than one with low 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 53.74% of 294 companies in the Aerospace & Defense industry. Overall, GuruFocus ranks the profitability of Huntington Ingalls Industries at 8 out of 10, indicating strong profitability.
Growth is one of the most important factors in the valuation of a company. If a company's business is growing, the company usually creates value for its shareholders, especially if the growth is profitable. Likewise, if a company's revenue and earnings are declining, the value of the company will decrease. Huntington Ingalls Industries's 3-year average revenue growth rate is better than 67.42% of 264 companies in the Aerospace & Defense industry. Huntington Ingalls Industries's 3-year average EBITDA growth rate is 7.5%, which ranks better than 66.09% of 230 companies in the Aerospace & Defense industry.
ROIC vs 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. We want to have the return on invested capital higher than the weighted cost of capital. For the past 12 months, Huntington Ingalls Industries's return on invested capital is 3.92, and its cost of capital is 5.58.
Conclusion
In conclusion, the stock of Huntington Ingalls Industries (HII, Financial) is believed to be fairly valued. The company's financial condition is fair, and its profitability is strong. Its growth ranks better than 66.09% of 230 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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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
