Huntington Ingalls Industries
HII
$316.93
+1.03%
Huntington Ingalls Industries is the largest independent U.S. military shipbuilder, operating three segments: Ingalls (non-nuclear surface combatants such as Arleigh Burke-class destroyers and amphibious ships), Newport News Shipbuilding (the sole producer of Gerald Ford-class aircraft carriers and a major subcontractor on Virginia- and Columbia-class submarines), and Mission Technologies (uncrewed vessels, IT, and government services). Its competitive identity is defined by monopoly-like positioning in nuclear carrier construction and a duopoly with General Dynamics in destroyers and submarines, giving it a structurally entrenched role in national security industrial base planning. The current investor narrative centers on the tension between a powerful demand tailwind — proposals for a 355-ship Navy and a Pentagon budget approaching $1.5 trillion — and persistent execution concerns around labor, throughput, and margin recovery at the shipyards. The stock's sharp post-Q3 earnings rally reflects a beat-and-raise that partially reset sentiment after a difficult stretch, while emerging competition from venture-backed players like Anduril and Saronic in uncrewed and submarine-component work adds a longer-term disruptive debate to the story.…
HII
Huntington Ingalls Industries
$316.93
Related headlines
Investment Opinion: Should I buy HII Today?
HII is rated a Hold with a bias toward accumulating on weakness. The core thesis is that HII's monopoly-like position in nuclear carriers and duopoly in destroyers/submarines provides a durable backlog, but thin margins and lumpy cash flow limit near-term upside. The analyst consensus is 'buy' with an average target of $356.42, implying 12.5% upside, but the wide target range ($281-$406) reflects disagreement on execution. The recent Q3 beat-and-raise has improved sentiment, but the stock has already rallied 18.65% in the past month, leaving less margin of safety.
Supporting evidence includes revenue growth of 10.9% year-over-year in Q2 2026, margin expansion (net margin up to 6.09% from 4.93%), and a forward PE of 15.24x that is reasonable for a defense grower. However, TTM FCF of $376 million is only a 2.8% yield, and the PS ratio of 1.07x, while low, reflects the thin 4.85% net margin. The dividend yield of 1.59% with a 35.2% payout ratio provides some support, but the company's cash position of $12 million at the end of Q2 is a concern.
Key risks include execution on complex programs, labor shortages, and potential fixed-price contract charges. The rating would upgrade to Buy if HII demonstrates sustained FCF improvement (e.g., TTM FCF exceeding $600 million) and margin expansion (net margin above 6.5%), or if the stock pulls back to the $280-$290 range (near the analyst low target). It would downgrade to Sell if revenue growth decelerates below 5% or if a major contract charge occurs. Relative to its history, the stock is fairly valued to slightly overvalued on trailing earnings but undervalued on forward earnings; the market is pricing in successful execution.
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HII 12-Month Price Forecast
HII presents a balanced risk/reward at current levels. The company's unique position in naval shipbuilding and improving margins support a positive long-term outlook, but near-term execution risks and weak cash flow limit upside. The stock has rallied 18.65% in the past month, already capturing some of the good news, and the forward valuation is reasonable but not deeply discounted. We would upgrade to bullish if HII demonstrates sustained free cash flow improvement and margin expansion above 7%, or if the stock pulls back to the $280-$290 range. We would downgrade to bearish if revenue growth decelerates below 5% or if a major contract charge occurs.
Wall Street consensus
Most Wall Street analysts maintain a constructive view on Huntington Ingalls Industries's 12-month outlook, with a consensus price target around $358.58 and implied upside of +13.1% versus the current price.
Average Target
$358.58
12 analysts
Implied Upside
+13.1%
vs. current price
Analyst Count
12
covering this stock
Price Range
$281 - $406
Analyst target range
Coverage is solid with 12 analysts and a consensus recommendation of "buy" (mean rating 2.08 on a scale where lower is more bullish), and the average target price of $356.42 implies roughly +12.5% upside from the current $316.88. The consensus leans moderately bullish but not aggressively so — the mean rating of 2.08 sits between a strong buy and a hold, and the recent institutional actions are mixed: Citigroup and TD Cowen have maintained Buy ratings through 2026, while Wells Fargo reiterated Equal Weight in August and Bernstein initiated at Market Perform in September, and BofA upgraded to Neutral from Underperform in February. The pattern is one of cautious validation — analysts are not chasing the stock higher, but the downgrade cycle appears to have bottomed.
The target range of $281.00 to $406.00 is wide — a spread of $125, or roughly 39% of the current price — signaling genuine disagreement about execution. The high target of $406 assumes margin recovery toward historical levels, successful ramp on Columbia-class submarine and Ford-class carrier work, and multiple expansion as the Navy budget tailwind materializes; the low target of $281 essentially prices in continued margin compression and fixed-price contract charges, sitting only about 11% below the current price and near the post-earnings gap level. Consensus estimated revenue of $16.45 billion (range $16.00-$16.81 billion) and EPS of $28.12 (range $27.13-$28.91) imply modest but positive growth, and the tight EPS range relative to the wide price target spread tells the story: analysts largely agree on the earnings trajectory but disagree sharply on what multiple it deserves. Given the wide spread and the stock's recent 13% single-day move, the risk/reward is balanced — the consensus target offers modest upside, but the low target is close enough to current levels that a failed margin recovery would quickly test it.
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Bulls vs Bears: HII Investment Factors
The bull case for HII rests on its irreplaceable role in U.S. naval shipbuilding, accelerating revenue growth, and improving margins, supported by a favorable defense budget environment. The bear case centers on thin profitability, weak cash conversion, execution risks, and a valuation that is not deeply discounted on trailing earnings. Currently, the bull evidence appears stronger given the recent Q3 beat-and-raise, margin expansion, and analyst consensus 'buy' rating with 12.5% upside to the average target. However, the most critical tension is whether HII can sustainably improve margins and cash flow to justify the forward earnings multiple; if margin recovery falters, the stock could re-rate lower. The balance of evidence suggests a moderately bullish stance, but with caution warranted until cash flow and margin trends confirm.
Bullish
- Monopoly in nuclear carriers: Newport News Shipbuilding is the sole producer of Gerald Ford-class aircraft carriers and a major subcontractor on Virginia- and Columbia-class submarines, giving HII an irreplaceable role in U.S. national security. This monopoly-like positioning underpins a multi-year backlog and revenue visibility that few industrials can match.
- Revenue growth accelerating: Q2 2026 revenue of $3.418 billion rose 10.9% year-over-year, following 13.3% growth in Q1 2026 and 15.7% in Q4 2025. The multi-quarter acceleration reflects strong demand for naval ships and supports the thesis that HII is on a growth trajectory.
- Margin recovery underway: Q2 2026 net margin improved to 6.09% from 4.93% a year earlier, with gross margin rising to 13.22% from 12.82%. Operating income increased to $210 million (6.14% margin) from $154 million (5.00%), signaling that cost controls and operational improvements are taking hold.
- Attractive forward valuation: The forward PE of 15.24x is well below the trailing PE of 22.10x, implying expected EPS growth to $28.12. The PEG ratio of 2.16 and PS ratio of 1.07x suggest the stock is not expensive relative to its growth prospects, especially for a defense franchise with monopoly characteristics.
Bearish
- Thin margins leave little cushion: HII's net margin of 4.85% and gross margin of 12.70% are low for an industrial, reflecting cost-plus and fixed-price contract structures. A single fixed-price contract charge can erase a quarter's profit, as seen in past volatility, making earnings highly sensitive to execution.
- Cash flow is lumpy and weak: TTM free cash flow is only $376 million, a thin 2.8% FCF yield on the $13.36 billion market cap. Q1 2026 FCF was -$464 million due to a $685 million working capital drain, and the cash balance fell to just $12 million at the end of Q2, highlighting dependence on customer advance payments.
- Execution and labor challenges: Revenue growth decelerated to 10.9% in Q2 from mid-teens in prior quarters, suggesting throughput constraints and labor shortages are limiting output. The shipbuilding industry faces skilled labor shortages, and HII's ability to ramp production on complex programs like Columbia-class submarines remains a key risk.
- Valuation not cheap on trailing basis: The trailing PE of 22.10x sits in the upper-middle of its historical range (9.4x to 25.8x), and the PS ratio of 1.07x, while low absolutely, reflects the thin margins. If margin recovery stalls, the stock could de-rate toward the lower end of its historical PE band.
HII Technical Analysis
HII is in a recovery phase within a broader, roughly flat twelve-month trend: the 1-year price change is -0.69%, but the stock has rebounded aggressively off its 52-week low of $255.36 to the current $316.88, placing it at approximately 30% of its 52-week range (low $255.36 to high $460.00). That positioning — closer to the bottom than the top despite the recent bounce — signals the market is treating this as a repair job rather than a momentum breakout, and the -43.35% max drawdown underscores how severe the prior de-rating was. The 52-week high of $460.00 remains roughly 45% above the current price, a reminder that the long-term trend has not been reclaimed.
Short-term momentum has turned decisively positive and is diverging sharply from the longer-term trend: the 1-month change is +18.65% versus a 1-year change of -0.69%, and the 3-month change of -2.93% shows the inflection happened only recently. The single-session jump from $279.26 on 2026-10-28 to $316.21 on 2026-10-29 (+13.2%) on heavy volume around the Q3 print is the defining event — a gap-and-hold that flipped sentiment. Relative strength versus SPY confirms the divergence: +19.56% over 1 month against -11.85% over 1 year and -20.22% YTD, meaning HII is now outperforming a market that itself fell -0.91% over the past month. This pattern — violent 1-month outperformance against a negative 1-year record — is characteristic of a mean-reversion rally off oversold conditions rather than a confirmed new uptrend, and follow-through above the gap will be the tell.
Key technical levels are well defined: support sits at the $255.36 52-week low, with an intermediate shelf around $257-$265 where the stock based in late September and early October, while resistance lies at the $460.00 52-week high, with the $326-$330 area (the August consolidation zone) as the first hurdle to clear. A breakout above $330 on volume would validate the post-earnings reversal and open a path toward the $356 consensus target; a breakdown below $255 would signal the rally failed and reassert the downtrend. Volatility context matters for sizing: the -43.35% max drawdown and a short ratio of 2.82 (roughly 2.8 days of average volume to cover shorts) indicate a stock prone to sharp moves, and the 763,014 share volume print on the data date suggests liquidity is adequate but not deep — position sizing should account for gap risk around earnings and contract headlines.
Beta
0.15
0.15x market volatility
Max Drawdown
-43.4%
Largest decline past year
52-Week Range
$255-$460
Price range past year
Annual Return
-0.2%
Cumulative gain past year
| Period | HII Return | S&P 500 |
|---|---|---|
| 1m | +18.0% | -2.0% |
| 3m | -0.2% | -2.0% |
| 6m | +0.7% | +3.1% |
| 1y | -0.2% | +10.4% |
| ytd | -9.4% | +10.6% |
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HII Fundamental Analysis
Revenue is growing at a healthy clip: Q2 2026 revenue of $3.418 billion rose 10.9% year-over-year versus $3.082 billion in Q2 2025, and the multi-quarter trajectory shows acceleration — Q1 2026 revenue of $3.099 billion was up 13.3% from $2.734 billion in Q1 2025, while Q4 2025's $3.476 billion grew 15.7% over Q4 2024's $3.004 billion. Segment mix shows Newport News Shipbuilding as the largest contributor at $1.849 billion, followed by Ingalls at $845 million and Mission Technologies at $760 million, meaning the nuclear carrier and submarine franchise drives the bulk of the top line. The growth trend supports the investment case — backlog-backed, multi-year visibility tied to Navy procurement — but the deceleration from mid-teens growth in Q4/Q1 to 10.9% in Q2 bears watching as a signal that throughput constraints, not demand, are the binding limit.
Profitability is thin but improving: Q2 2026 net income was $208 million on a 6.09% net margin, up from $152 million and a 4.93% margin in Q2 2025, with gross margin of 13.22% versus 12.82% a year earlier. The sequential margin path is uneven — gross margin was 13.17% in Q1 2026 and 11.57% in Q4 2025 — but the year-over-year direction is favorable, and operating income of $210 million (6.14% operating margin) compares to $154 million (5.00%) a year ago. For defense shipbuilding, low-to-mid single-digit net margins are typical given cost-plus and fixed-price contract structures, so HII's 4.85% trailing net margin and 12.70% gross margin are within industry norms but leave little cushion — a single fixed-price contract charge can erase a quarter's profit, which is precisely the execution risk the market has been pricing.
Balance sheet and cash flow present the clearest caution flag: debt-to-equity of 0.62 is manageable, the current ratio of 1.13 is adequate, and ROE of 11.93% is respectable, but free cash flow is highly seasonal and lumpy — Q1 2026 FCF was -$464 million (operating cash flow -$390 million on a $685 million working capital drain) before recovering to +$43 million in Q2, against TTM FCF of just $376 million. That TTM FCF against a $13.36 billion market cap implies a thin FCF yield of roughly 2.8%, and the Q2 cash balance fell to just $12 million from $216 million at the start of the quarter, underscoring dependence on working capital timing and progress payments rather than internally generated cash. The company funds a 1.59% dividend (payout ratio 35.2%) comfortably from earnings, but the negative operating cash flow in Q1 and the $12 million quarter-end cash position mean external financing and customer advance payments remain structural to the model — financial risk is moderate, not acute, but cash conversion is the metric to monitor.
Quarterly Revenue
$3.5B
2026-09
Revenue YoY Growth
+10.8%
YoY Comparison
Gross Margin
13.6%
Latest Quarter
Free Cash Flow
$524000000.0B
Last 12 Months
Revenue & Net Income Trends (2 Years)
Revenue Breakdown
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Valuation Analysis: Is HII Overvalued?
Because net income is positive ($208 million in Q2 2026, TTM EPS positive), the PE ratio is the appropriate primary metric: HII trades at 22.10x trailing earnings versus 15.24x forward, a 31% compression that implies the market expects meaningful EPS growth — consistent with consensus estimated EPS of $28.12 against a trailing base that produces the 22x multiple. The gap between trailing and forward PE is the crux of the valuation debate: investors are paying a modest trailing multiple for a defense compounder on the assumption that margin recovery and revenue growth deliver the forward number, and if execution slips the stock re-rates toward the trailing multiple rather than the forward one.
On peer comparison, HII's 22.10x trailing PE and 1.07x PS sit at a discount to what premium defense franchises typically command, and its 12.99x EV/EBITDA and 1.11x EV/Sales are modest for a company with monopoly-like carrier exposure — the PS ratio of 1.07x is notably low in absolute terms, reflecting the thin 4.85% net margin rather than a cheap enterprise. The 2.63x P/B and 2.16x PEG suggest the market is not paying up for growth, and the 1.59% dividend yield with a 35.2% payout provides some valuation support. The discount appears justified by inferior profitability (12.70% gross margin, 4.85% net margin) and execution risk relative to higher-margin defense peers, but it also means the stock is not priced for perfection — a favorable setup if margins normalize.
Historical context is instructive: HII's PE ratio has ranged from roughly 9.4x (Q4 2023) to 25.8x (Q3 2024) over the past several years, and the current 22.10x sits in the upper-middle of that band — above the 13.3x recorded in Q2 2026 and the 15.0x in Q4 2024, but below the 25.1x in Q1 2026. The PS ratio of 1.07x, however, is near the low end of its historical range (which has run 2.5x-4.8x in recent quarters per the historical ratios data), a divergence that reflects the earnings recovery lifting the PE while the revenue base has grown faster than the multiple. Net-net, the stock is priced toward the optimistic end of its own PE history but at a depressed PS — a mixed signal that argues for waiting for margin confirmation rather than chasing the post-earnings gap.
PE
22.1x
Latest Quarter
vs. Historical
High-End
5-Year PE Range 9x~26x
vs. Industry Avg
39.4x
Industry PE ~39.4x*
EV/EBITDA
13.0x
Enterprise Value Multiple
Investment Risk Disclosure
HII faces financial and operational risks primarily from its thin margins and lumpy cash flow. Net margin is only 4.85% and gross margin 12.70%, leaving little room for error on fixed-price contracts. TTM free cash flow of $376 million is modest against $13.36 billion market cap, and Q1 2026 FCF was -$464 million due to working capital swings, with cash balance dropping to $12 million in Q2. Debt-to-equity of 0.62 is manageable, but the company relies on customer advance payments and external financing to fund operations, making it vulnerable to contract timing and payment delays.
Market and competitive risks include valuation compression if margin recovery disappoints. The trailing PE of 22.10x is above the historical median, and the forward PE of 15.24x assumes EPS growth to $28.12. If execution issues persist, the stock could trade down to the lower end of its historical PE range (9.4x-25.8x). Additionally, emerging competitors like Anduril and Saronic in uncrewed vessels and submarine components could disrupt HII's Mission Technologies segment and long-term market share. The stock's beta is not provided, but its -43.35% max drawdown and 2.82 short ratio indicate high volatility and sensitivity to news.
Worst-case scenario: a major fixed-price contract charge, delayed carrier or submarine deliveries, or a budget impasse could trigger a sharp sell-off. The 52-week low of $255.36 represents a 19.4% decline from the current $316.88, and the analyst low target of $281 is 11.3% below. A re-rating to the historical low PE of 9.4x on trailing EPS would imply a much lower price, but more realistically, a drop to the 52-week low would cost investors nearly 20%. If execution issues worsen and the market questions the growth trajectory, the stock could test the $255 level, a 19% downside.
FAQ
The key risks include: 1) Execution risk: thin margins (4.85% net) mean a single fixed-price contract charge can significantly impact earnings, as seen in past volatility. 2) Cash flow risk: TTM FCF of $376 million is only a 2.8% yield, and Q1 2026 FCF was -$464 million due to working capital swings, with cash balance at just $12 million in Q2. 3) Competitive risk: emerging players like Anduril and Saronic could disrupt HII's Mission Technologies segment and long-term market share in uncrewed vessels. 4) Budget risk: defense spending is subject to political negotiations, and a continuing resolution could delay new contract awards. These risks are ranked in order of severity, with execution and cash flow being the most immediate concerns.
Our 12-month forecast has three scenarios: Bull (25% probability) with a target range of $380-$406, driven by successful program execution and margin expansion; Base (55% probability) with a target range of $330-$370, assuming steady growth and gradual margin improvement; and Bear (20% probability) with a target range of $255-$281, triggered by execution setbacks or budget delays. The base case is most likely, with a target around the analyst average of $356, implying 12.5% upside. The key assumption is that HII continues to grow revenue high-single digits and improves net margin to 6.5-7.0% without major contract charges.
HII's valuation is mixed. On a trailing basis, the PE of 22.10x is above its historical median and in the upper-middle of its 5-year range (9.4x-25.8x), suggesting the stock is not cheap. However, the forward PE of 15.24x is more attractive, implying the market expects EPS growth to $28.12. The PS ratio of 1.07x is low in absolute terms but reflects the thin net margin of 4.85%. Compared to defense peers, HII trades at a discount on PS and EV/EBITDA (12.99x), likely due to lower profitability. Overall, the stock appears fairly valued to slightly overvalued on trailing metrics but fairly valued on forward earnings, assuming execution improves.
HII offers a compelling long-term investment case due to its monopoly in nuclear aircraft carriers and duopoly in submarines, which provide a durable backlog and revenue visibility. The stock trades at a forward PE of 15.24x, which is reasonable for a defense grower, and analysts have a 'buy' consensus with an average target of $356.42, implying 12.5% upside. However, the recent 18.65% one-month rally has reduced the margin of safety, and the company's thin margins (4.85% net) and weak free cash flow (2.8% yield) are concerns. For long-term investors with a 3-5 year horizon, HII is a good buy on pullbacks, especially near the $280-$290 range. For short-term traders, the risk/reward is less favorable after the sharp rally.
HII is more suitable for long-term investment (3-5 years) given its strategic importance in U.S. defense, multi-year backlog, and dividend (1.59% yield). The stock's beta is not provided, but its -43.35% max drawdown and 2.82 short ratio indicate high volatility, making it less ideal for short-term trading unless one can capitalize on event-driven moves like earnings. The company's earnings visibility is high due to long-term contracts, but execution risks can cause short-term fluctuations. A minimum holding period of 2-3 years is recommended to ride out volatility and benefit from margin recovery and defense spending tailwinds.