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Huntington Ingalls

Huntington Ingalls: A Record Backlog And Undervaluation Mean Buy

Huntington Ingalls Industries (NYSE:HII) is an undervalued defense stock with a record backlog to boot. The company is one of the primary shipbuilders for the U.S. Navy. The stock was arguably overvalued before the recent bear market but hit a 52-week low about $147. The stock price has rebounded some but not near the amount as some other defense stocks. The stock price is still down roughly (30%) year to date. This is likely due to the impact of COVID-19 on operations and possibly due to the company’s exposure to oil and gas engineering. With that said, Huntington Ingalls Industries is still expected to grow the top line in 2020. Granted, company-wide margins are trending down. But the company is a Dividend Challenger, and the dividend is growing at a double-digit rate. The dividend yield is greater than the yield of the S&P 500 at 2.3%. Huntington Ingalls is arguably undervalued on an earnings basis and it has a record backlog. I view it as a long-term buy.

Overview of Huntington Ingalls

Huntington Ingalls Industries builds nuclear and non-nuclear ships for the U.S. Navy. The company reports three business segments: Newport News Shipbuilding (58% of revenue), Ingalls Shipbuilding (29% of revenue) and Technical Solutions (13% of revenue). Newport News builds nuclear-powered aircraft carriers and submarines. Ingalls builds surface combatant ships, amphibious assault ships, and Coast Guard cutters. Technical Solutions provides fleet maintenance and modernization, IT support, nuclear management and operations, and oil and gas engineering. Huntington Ingalls is the largest supplier of U.S. Navy surface combatant ships. The company has built more than 70% of the Navy’s fleet of warships. In addition, Huntington Ingalls is the sole builder of aircraft carriers, exclusive provider of refueling services for nuclear aircraft carriers, one of two builders of nuclear submarines, builder of record of the DDG 51 class Aegis guided missile destroyers, builder of record of the LHA 6 class amphibious ships and the sole builder of the new San Antonio-class of amphibious assault ships. Approximately 88% of revenue was from the U.S. Navy, 5% from the U.S. Coast Guard, 3% from commercial customers and 4% from other government agencies. Revenue was $8,899M in 2019.

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Prakash Kolli is the founder of the Dividend Power site. He is a self-taught investor, analyst, and writer on dividend growth stocks and financial independence. His writings can be found on Seeking Alpha, InvestorPlace, Business Insider, Nasdaq, TalkMarkets, ValueWalk, The Money Show, Forbes, Yahoo Finance, and leading financial sites. In addition, he is part of the Portfolio Insight and Sure Dividend teams. He was recently in the top 1.0% and 100 (73 out of over 13,450) financial bloggers, as tracked by TipRanks (an independent analyst tracking site) for his articles on Seeking Alpha.

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