Today witnessed a 6% surge in Huntington Ingalls' share price.
Huntington Ingalls' Struggles and Citigroup's Optimism
Investors in Huntington Ingalls (HII 2.39%) have been swimming in the red tide this February. Shares of the Navy shipbuilder took a 18% hit in the initial week of February, after missing expectations in their Q4 2024 report. Briefly, the stock sighted at the $160-a-share level, but today it's on an upswing. The uptick is fueled by Citigroup, which released a cheerful note over the holiday weekend, asserting that the stock is being undervalued. As of 2:50 p.m. ET, the stock is up approximately 5%.
Citigroup's Take on Huntington Ingalls
Citigroup lowered its price target for HII shares to $235, yet they steadfastly stood by their "buy" rating. Unfortunately, the bank didn't provide enough insight into their rationale in their note, which was published on The Fly. So, it's up to us, smart investors, to decipher the situation.
Huntington Ingalls in Perspective
So, what does the last quarter reveal about HII stock?
We know that the company's revenue growth stagnated. In 2024, revenue grew just 1% compared to 2023, reaching $11.5 billion. However, with a market cap of $6.3 billion, the stock is a bargain, costing only 0.55 times its trailing sales. This is a historically low valuation for a defense stock.
Even considering the company's $2.6 billion in net debt, HII stock's enterprise value-to-sales ratio is still only 0.8x. It's not as cheap as 0.55, but it's a steal when you consider the defense industry.
The company's P/E ratio is an agreeable 11.5, aligning with its projected 11% long-term earnings growth rate. The stock also boasts a 3.3% dividend yield, something shareholders won't turn their noses at.
The main criticism of HII stock is its lackluster free cash flow. But if you can overlook that, it's not hard to call HII stock a well-deserved "buy".
Enrichment Data: The stock's valuation appears to be attractive when compared to historical benchmarks for defense stocks.
In 2024, revenue grew 1% compared to 2023. Despite this modest growth, the stock remains cheap, costing only 0.55 times its trailing sales.
While the company's balance sheet includes $2.6 billion in net debt, its enterprise value-to-sales ratio remains low (under 0.8x) compared to the industry average.
Additionally, HII's P/E ratio is 11.5, which is in line with the company's 11% long-term projected earnings growth rate.
The stock also pays a 3.3% dividend yield, which is higher than the average yield for the S&P 500 (<2%) and the broader market.
However, it's worth noting that despite these favorable valuation metrics, the company's operational performance has been challenging, particularly at Newport News Shipbuilding, where inefficiencies have resulted in reduced profitability.
Citigroup may be factoring in the company's future growth potential and its ability to address these inefficiencies going forward, as the company boasts a substantial backlog of $48.7 billion at year-end and has been working to secure new contracts and enhance its Mission Technologies segment.
Investor sentiment remains positive, as evidenced by the stock's 5% increase following Citigroup's revised price target, despite the earnings miss.
It's important to do your own research and consider all potential risks and opportunities before making an investment decision.
- Despite Citigroup lowering its price target for Huntington Ingalls (HII) shares to $235, they maintained their "buy" rating, indicating that they believe the stock is still undervalued in the finance world of investing.
- The lackluster free cash flow of Huntington Ingalls (HII) stock has been a main criticism, but if investors can overlook this, they may find a well-deserved buying opportunity in the stock market, especially considering its attractive valuation metrics and substantial backlog.
- Following Citigroup's revised price target for Huntington Ingalls (HII) shares, the stock saw an approximate 5% increase, demonstrating the positive impact of optimistic analysts on investor sentiment and the stock market's performance.
- In 2023, revenue at Huntington Ingalls (HII) grew just 1%, but the finance sector continues to view the stock as a bargain due to its low valuation, aligning with its projected earnings growth rate and robust dividend yield, making it an appealing choice for stock market investors.
