HUNTINGTON INGALLS INDUSTRIES, INC. (HII): what the price requires
At today's price, HUNTINGTON INGALLS INDUSTRIES, INC. (HII) is priced for +6.9% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.
Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/HII
Headline
| Field | Value |
|---|---|
| Ticker | HII |
| Company | HUNTINGTON INGALLS INDUSTRIES, INC. |
| Current price | $285.30/sh |
| Composition | Product sales 65% / Service revenues 35% |
What The Price Requires (Inversion)
The assumption today's price embeds, recovered by inverting the valuation.
| Field | Value |
|---|---|
| Inversion basis | whole-company |
| Operating margin needed | 2.5% |
| Operating margin today | 5.3% |
| Margin compression implied | -2.8pp |
| Implied growth | 6.9% |
| Multiple paid | 23x operating income |
The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.
Solve inputs: computed at a 7.4% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~8.1pp.
Reconcile: at the x-ray's 9.3% required return this reads ~20.9%/yr; the models below use their own rates.
How unusual the bet is: within-range
| Reference | Value |
|---|---|
| vs own history | -0.03σ |
| cohort percentile (of 225 peers) | 54 |
| implied end-window share | 0% |
Valuation X-Ray
The price is justified by relative-multiple and growth-DCF; asset-based/earnings-power land below the price.
How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.
| Family | Median price/FV | Models | Reads |
|---|---|---|---|
| Asset | 1.53x | 5 | expensive |
| Earnings | 1.99x | 5 | expensive |
| Relative | 0.87x | 5 | justifies |
| Growth | 0.68x | 3 | justifies |
Families that justify the price: Relative, Growth Families that call it expensive: Asset, Earnings
The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 7.5%); the inversion above states its own rate.
Per-Model Detail (n=18)
| Model | Family | FV | Price/FV | Applicable | Methodology |
|---|---|---|---|---|---|
| DCF Perpetual Growth | Growth | $698.43 | 0.41x | yes | FCF base $0.8B, growth 12% (input: historical growth), terminal g 4.0%, WACC 7.5%, 6yr projection |
| DCF Exit Multiple | Growth | $417.11 | 0.68x | yes | Exit EV/EBITDA: 12.5x / 14.5x / 16.5x (bear / base = today's held flat / bull), 6yr |
| Relative Valuation | Relative | $326.70 | 0.87x | yes | P/E 22x (static sector reference · 2026-04), scenarios: 18.3x / 22.0x / 25.7x (bear / base = reference held flat / bull), EV/EBITDA 14x |
| Simple DDM | Growth | — | — | no | — |
| Two-Stage DDM | Growth | — | — | no | — |
| Simple Excess Return | Asset | $166.43 | 1.71x | yes | BV/sh $130.97, ROE (TTM) 11.8%, ke 9.3% |
| Two-Stage Excess Return | Asset | $186.62 | 1.53x | yes | 5yr excess ROE then converge to ke=9.3% |
| Discounted Future Market Cap | Growth | $260.29 | 1.10x | yes | Rev $12.8B, growth 12% (input: historical growth; tapered), Terminal P/S: 0.7x / 0.9x / 1.0x (bear / base = today's held flat / bull, cap 8x) |
| Peter Lynch Fair Value | Relative | $233.80 | 1.22x | yes | EPS $15.39, growth 15% (input: historical EPS growth), PEG=1.22 (Fair) |
| Margin Trajectory | Growth | — | — | no | — |
| Earnings Power Value | Earnings | $89.47 | 3.19x | yes | Normalized EBIT (5y avg op income, one-time charges added back) $0.61B × (1−21%) / WACC 7.5% → EPV (no growth) |
| Residual Income | Asset | $190.66 | 1.50x | yes | BV $130.97 + 5yr PV of (ROE (TTM) 11.8% − Kₑ 9.3%) × BV; BV grows 7.6%/yr |
| Graham Number | Asset | $212.96 | 1.34x | yes | √(22.5 × EPS $15.39 × BVPS $130.97) — Graham's conservative floor |
| EV/EBITDA Relative | Relative | $273.46 | 1.04x | yes | EBITDA $0.98B × sector EV/EBITDA 14.0x |
| FCF Yield | Earnings | $143.29 | 1.99x | yes | FCF $792.0M / Kₑ 9.3% — zero-growth perpetuity |
| SBC-Adj FCF Yield | Earnings | $129.26 | 2.21x | yes | SBC-adj FCF $0.74B (FCF $0.79B − SBC $0.05B) capitalized at Kₑ |
| Ben Graham Formula | Earnings | $496.58 | 0.57x | yes | EPS $15.39 × (8.5 + 2×15.0%) × (4.4 / 5.3%) |
| ROIC-Justified P/B | Asset | $26.71 | 10.68x | yes | BV $130.97 × (ROIC 1.5% / WACC 7.5%) |
| P/Sales Sector | Relative | $653.89 | 0.44x | yes | Revenue $12.85B × sector P/S 2.0x |
| PEG Fair Value | Relative | $350.70 | 0.81x | yes | EPS $15.39 × (PEG 1.5 × growth 15.2% (input: historical EPS growth)) → PE 22.8x |
| Earnings Yield | Earnings | $166.38 | 1.71x | yes | EPS $15.39 / required return 9.3% (Rf 4.3% + ERP 5.0%) |
| Funds From Operations Multiple | Relative | — | — | no | — |
| Clinical Phase NPV | Growth | — | — | no | — |
| Merton | Asset | — | — | no | — |
| V5 Mechanical | — | — | — | no | — |
Solvency
| Field | Value |
|---|---|
| Net debt | $3.2b |
| Net debt / NOPAT (after-tax) | 6.32x |
| Net debt / operating income (pre-tax) | 5.01x |
| Interest coverage | 6.3x |
| Share count CAGR (buyback) | -0.4% |
| Burning cash | no |
Bullet Takeaways
- Huntington Ingalls is the sole designer and builder of US Navy nuclear-powered aircraft carriers and a key submarine builder, a position no competitor can replicate, with a backlog of $54.0 billion.
- The defining risk is margin, not demand: shipbuilding operating margin slipped to 5.6% from 6.3% as inflation and labor costs pressured long-cycle, partly fixed-price contracts.
- Watch the margin trajectory and submarine contract awards: management guided second-quarter shipbuilding margin to 5.7% to 6% and expects Virginia- and Columbia-class contract activity.
Bull Case
Huntington Ingalls sits at a stage that is unusual for an industrial company: it is mature in the sense that its franchise is fixed and irreplaceable, yet it is entering a demand upcycle that should run for years. Its Newport News segment is, in the company's own words, in the business of "designing and constructing nuclear-powered aircraft carriers and submarines, and the refueling and overhaul and the inactivation of nuclear-powered" ships. That is a monopoly. No one else in the United States builds nuclear carriers, and the submarine industrial base is a duopoly with General Dynamics. When the customer is the US Navy and the product takes a decade to build and a lifetime to service, the revenue is about as visible as it gets in any industry.
The backlog quantifies that visibility. HII reported $4.0 billion of new awards in the first quarter of 2026, lifting total backlog to $54.0 billion, several years of revenue already under contract. Revenue grew 13.4% to $3.1 billion in the quarter, with Newport News up 19.3%, reflecting a Navy that is prioritizing fleet expansion and submarine production to meet strategic needs. A company with this kind of order book does not have to win new customers; it has to execute on work already committed.
The forward demand environment is the tailwind. Geopolitical pressure and the AUKUS submarine commitments have made naval shipbuilding a national priority, and management expects continued Virginia- and Columbia-class submarine contract activity. As the Navy funds the industrial base to lift production rates, HII is the prime beneficiary. The relative-multiple and growth-oriented valuation methods reach the current price, reflecting that the market sees the demand runway. The bull case is a defensively positioned monopoly franchise with a multi-year backlog entering a structural upcycle in naval procurement.
Bear Case
The variable that most threatens Huntington Ingalls is the one it cannot control: the federal budget. HII has effectively a single customer, the US Navy, and the company is explicit that "U.S. defense spending priorities that reduce the demand for the types of ships we build and services we provide increase our exposure to market competition risk." A shift in procurement priorities, a budget impasse, or a reallocation away from large surface ships toward unmanned or distributed systems would hit a company with nowhere else to sell. The current upcycle is real, but it rests on political commitments that can change with an administration or a continuing resolution, and the price does not reflect that single-customer concentration as a discount.
The more immediate problem is on the income statement: the margins are thin and shrinking. Shipbuilding operating margin fell to 5.6% in the first quarter from 6.3% a year earlier, and the cause is structural to the business. Many of HII's contracts are long-cycle and partly fixed-price, and the company warns that costs to complete a contract can "differ materially from our initial estimates" because of "inflation" and other factors. When a shipyard signs a fixed-price contract years before delivery and then absorbs wage and material inflation, the margin compresses with no easy way to pass it on. A company earning a 5% operating margin has almost no buffer, and that is exactly what the asset-value and earnings-power methods flag when they read the stock as expensive.
The cash picture compounds the concern. Free cash flow was negative $461 million in the quarter, reflecting working-capital demands on long-cycle programs, and the timing of milestone payments makes HII's cash lumpy and back-end loaded. The company carries about $3.2 billion of net debt at roughly 5 times operating income. At about 23 times operating income the price assumes 6.6% annual operating-profit growth for five years; a company with compressing margins, negative interim cash flow, and a single budget-dependent customer is a demanding bet to underwrite at a multiple in the upper half of its peer range.
Valuation
At about $285 (June 27, 2026) Huntington Ingalls trades near 23 times company-wide operating income, which inverts into an assumption of roughly 6.6% annual operating-profit growth over five years. That pace is within what the company has recently delivered, so the question is durability, and the multiple sits in the upper half of its defense-peer range. The growth has to come largely from margin recovery on top of revenue growth, because the current operating margin near 5% is depressed by inflation on long-cycle contracts.
The methods divide on whether to credit that recovery. The relative-multiple and growth-oriented methods reach the price, valuing the backlog and the demand upcycle. The asset-value and earnings-power methods read the stock as expensive, because they anchor on the thin current margins and the modest return on the large invested capital a shipyard requires. The peer-multiple read uses a sector P/E near 22 times, which the stock roughly satisfies. The honest framing is that the price is defended by the order book and the procurement tailwind, not by trailing profitability, and the spread between the two camps is the market pricing in a margin normalization that has not yet shown up in the numbers.
Solvency is sound but the cash flow is lumpy. Net debt of about $3.2 billion sits at roughly 5 times operating income, with interest coverage near 6.6 times. The complication is timing: free cash flow was negative $461 million in the quarter because long-cycle shipbuilding ties up working capital, and HII's cash generation is back-end loaded toward program milestones. The company is not in financial distress, and the contracted backlog underpins the debt, but a buyer should expect cash to arrive unevenly. What a holder underwrites at this price is an irreplaceable naval franchise with a multi-year backlog, priced for a margin recovery and continued procurement growth, with defense-budget priorities and fixed-price contract execution as the risks the upper-half multiple leaves little room for.
Catalysts
Huntington Ingalls beat estimates in its first quarter of 2026, with revenue up 13.4% to $3.1 billion and net earnings of $149 million, or $3.79 per diluted share. Newport News Shipbuilding revenue rose 19.3% to $1.665 billion and Ingalls Shipbuilding 13.8% to $725 million. The cause behind the top-line strength was rising Navy production volume, while the key tension was margin: segment operating margin slipped to 5.6% from 6.3% a year earlier, reflecting inflation and labor pressure on long-cycle contracts.
The order book strengthened. HII booked $4.0 billion of new awards in the quarter, lifting total backlog to $54.0 billion, providing multiple years of contracted revenue visibility. Free cash flow was negative $461 million, consistent with the working-capital demands of long-cycle shipbuilding and the milestone-driven timing of payments.
Management reaffirmed full-year 2026 guidance and guided second-quarter shipbuilding revenue to about $2.4 billion at a 5.7% to 6% margin, while signaling expected Virginia- and Columbia-class submarine contract activity in the second quarter. The catalysts to watch are the recovery in shipbuilding margins, the pace of submarine contract awards as the Navy funds higher production rates, and the federal defense-budget environment, which is the external variable with the most leverage on HII's single-customer demand.
Peer Cohorts (Per Segment, With Filing Citations)
Ingalls (reported)
- GD (GENERAL DYNAMICS CORPORATION)
- (no filing in the citation store)
- NOC (NORTHROP GRUMMAN CORP /DE/)
- (no filing in the citation store)
- LMT (LOCKHEED MARTIN CORPORATION)
- (no filing in the citation store)
- TXT (Textron Inc.)
- (no filing in the citation store)
Newport News (reported)
- GD (GENERAL DYNAMICS CORPORATION)
- (no filing in the citation store)
- BWXT (BWX Technologies Inc)
- (no filing in the citation store)
- NOC (NORTHROP GRUMMAN CORP /DE/)
- (no filing in the citation store)
- LMT (LOCKHEED MARTIN CORPORATION)
- (no filing in the citation store)
Mission Technologies (reported)
- LDOS (Leidos Holdings, Inc.)
- (no filing in the citation store)
- BAH (BOOZ ALLEN HAMILTON HOLDING CORPORATION)
- (no filing in the citation store)
- SAIC (Science Applications International Corporation)
- (no filing in the citation store)
- CACI (CACI International Inc)
- (no filing in the citation store)
- KBR (KBR, Inc.)
- (no filing in the citation store)
- PSN (Parsons Corporation)
- (no filing in the citation store)
- DRS (Leonardo DRS, Inc.)
- (no filing in the citation store)
Methodology Note
- Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
- Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
- Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
- Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.
Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.
Sources
HII Q1 2026 results, May 2026 · HII FY2025 10-K