Huntington-Ingalls (HII), which specializes in building ships for the U.S. Navy, has recently received multiple, major contracts from the Navy, showing that the Pentagon continues to view the firm favorably. Moreover, the company is well-positioned to benefit significantly from the Navy’s upcoming expansion, while Citi and Goldman Sachs are bullish on the name, and the valuation of HII stock is attractive.
In light of all of these points, some investors should consider buying the shares at this point.
Multiple, Major, Deals With the Pentagon
Most impressively, HII on January 20 announced that it had received a huge contract which could be worth up to $151 billion from the Missile Defense Agency. The company reported that, in conjunction with the agreement, it may work on “directed energy, command and control system integration, data and cyber operations, microelectronics, spectrum management, live/virtual/constructive training environments, logistics, and sustainment.”
On January 20, the company disclosed that it was one of 12 firms selected by the Pentagon to compete for $25.4 billion over 10 years. The 12 companies will seek “to provide engineering solutions for electronics and software problems,” HII stated.
Last August, Huntington Ingalls received a contract modification worth over $276 million. Under the deal, Huntington will upgrade the USS Harry S. Truman’s refueling system.
Also noteworthy is that in the third quarter of last year, Huntington’s revenue from shipbuilding jumped 18% versus the same period a year earlier to $2.4 billion, indicating that this business is healthy and expanding rapidly.
Finally, at the end of last year, at a news conference with President Donald Trump, the company disclosed that it would be one of three companies that will design a new, high-tech battleship named after the president. The administration is looking to eventually develop 14 of the ships.
A Major Beneficiary of the Navy’s Future Plans
As part of its future plans, the Navy intends to intensively utilize advanced technologies, including “non-traditional attack vectors, “autonomous systems,” and ” early target development.” Consequently, the revenue that Huntington obtains from its high-tech offerings should increase a great deal over the longer term.
Among Huntington’s products that the Navy can utilize in conjunction with its strategy are AI offerings, electromagnetic warfare systems, big data analytics, advanced autonomy products, and unmanned systems sustainment.
On the company’s Q3 conference call, CEO Christopher Kastner noted that the firm had initiated “a partnership with Shield AI to accelerate cross-domain and modular mission autonomy solutions, and (had launched) a partnership with Talos to develop advanced autonomous undersea mine countermeasure capabilities.” Further, the CEO noted that Huntington had introduced “the Romulus family of unmanned surface vessels powered by Odyssey autonomy software.”
All of the latter initiatives should leave the firm better positioned to get significant boosts from the Navy’s upcoming modernization efforts.
Citi and Goldman Sachs Are Bullish on HII Stock
On January 13, Citi raised its price target on HII to $450 from $376 and kept a Buy rating on the name. Among the reasons cited by the bank for its price target increase were its belief that the company’s momentum will continue to be strong, its forecast for powerful demand for the contractor’s ships, and Huntington’s $56 billion backlog as of the end of Q3.
Similarly, Goldman on January 20 increased its price target on the shares to $425 from $384 while keeping a Buy rating on the stock.
Valuation and the Bottom Line on HII Stock
HII has a forward price-earnings ratio of 22.8 times. Given the company’s large backlog and impressive growth opportunities, its valuation is low and attractive.
Since Huntington is a large, very well-established company, its stock is best suited for conservative investors and value investors who are looking for increased exposure to large defense contractors.
*This article is intended to be informational only; it is not financial advice
