HII Huntington Ingalls Industries
Irreplaceable Navy shipbuilder, but the monopsony buyer caps margins; steady annuity priced above intrinsic value.
The story
HII is the sole builder of US nuclear aircraft carriers and one of two nuclear submarine yards, which gives it a near-irreplaceable franchise. Its single customer, the US Navy, caps how much profit it can earn. The business is mature and backlog-driven: AUKUS, Columbia/Virginia-class demand and overhauls such as the $5.1B Truman RCOH give it multi-year revenue visibility. Labor, supply-chain and fixed-price execution problems keep margins in the 6-8% range rather than allowing real expansion.
All drivers are unchanged from the 2026-09-14 take. TTM revenue of $13.19B (about 6% growth) and the Truman award confirm the growth path but do not change the economics. The 8% target margin is a modest recovery from 7.1% toward the shipyard's historical norm, and it stays below the peak because the Navy's cost-plus and fixed-price terms cap returns. Beta sits slightly below the 1.2 industry anchor because demand comes from government-funded, contracted backlog.
Value drivers
| Revenue growth (Y1) | 6.0% |
| Terminal growth | 2.5% |
| Forecast horizon | 7y |
| Target operating margin | 8.0% |
| Years to target margin | 7 |
| Sales-to-capital | 1.70 |
| Beta | 1.15 |
| Failure probability | 1.0% |
| Cost of capital (WACC) | 9.4% |
| Terminal WACC | 8.9% |
Valuation bridge
| PV of explicit FCFF | 2.71B |
| PV of terminal value | 6.91B |
| Equity value | 7.62B |
| ÷ shares → per share | $193.39 |
News
bullish +0.30 · 8 articles
- Huntington Ingalls Industries (HII) Secures $5.1 Billion Truman Overhaul Contract
- Why Huntington Ingalls (HII) Stock Is Up Today
- HII or SAFRY: Which Is the Better Value Stock Right Now?
- Red Cat's USV Mix: Could Blue Ops Accelerate Margin Gains in H2?
- Can BWXT's Technical Talent Support Long-Term Nuclear Growth?
- Can Virginia-Class Submarine Demand Support General Dynamics' Growth?
- 1 Oversold Stock Primed to Rebound and 2 We Ignore
- 3 Low-Volatility Stocks with Questionable Fundamentals
Projected free cash flow to the firm
| Yr | Revenue | Growth | Margin | NOPAT | Reinvest | FCFF | PV |
|---|---|---|---|---|---|---|---|
| 1 | 13.98B | 6.0% | 7.3% | 790.78M | 465.35M | 325.43M | 297.42M |
| 2 | 14.73B | 5.4% | 7.4% | 847.64M | 445.32M | 402.32M | 336.05M |
| 3 | 15.45B | 4.8% | 7.5% | 903.31M | 418.88M | 484.42M | 369.81M |
| 4 | 16.10B | 4.2% | 7.6% | 957.02M | 386.13M | 570.89M | 398.31M |
| 5 | 16.69B | 3.7% | 7.8% | 1.01B | 347.29M | 660.70M | 421.30M |
| 6 | 17.21B | 3.1% | 7.9% | 1.06B | 302.75M | 752.70M | 438.66M |
| 7 | 17.64B | 2.5% | 8.0% | 1.10B | 253.04M | 845.58M | 450.38M |
Key risks
- Shipyard labor shortages and productivity problems push margins below 7% on fixed-price contracts
- Continuing resolutions or a shift in Navy budget priorities delay ship funding
- Supplier delays on Columbia/Virginia-class programs cause charges and timing slippage
Catalysts
- A recovery in shipyard throughput lifts margins toward 8%+ and reduces charges
- Supplemental submarine-industrial-base funding and AUKUS work add higher-margin volume