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Accelerated Virginia-class submarine procurement and carrier overhaul awards expand throughput and drive digital shipbuilding efficiency gains.
Consolidated operating profit margin falls below 4.0% over an 18-month window.
We assign a Strong Buy rating to Huntington Ingalls Industries, as the stock trades at $272.86 on September 18, 2026, offering 38.4% upside to our Fair value of $377.71.4
The Strong Buy committee rating reflects an exceptional valuation opportunity for long-term compounders. The shares closed at $272.86 on September 18, 2026, creating substantial upside to our Fair value midpoint of $377.71 and Potential value of $570.12.4
The primary risk to our constructive view involves skilled nuclear shipyard labor bottlenecks. Persistent shortages of certified welders drive overtime wage premiums and schedule delays, which would compress operating margins below 4.5% and impede earnings growth.
The core engine of value creation is the company's status as the exclusive builder of nuclear aircraft carriers and major contractor for nuclear submarines. Navy milestone billings generated $1,196M in operating cash flow during FY2025, easily funding dry dock modernizations and driving steady per-share equity compounding.67
Exclusive builder of US nuclear aircraft carriers and prime builder of nuclear submarines, shielded by prohibitive capital and regulatory barriers.7
Shares trade at 12.66x forward earnings on the report date, offering 38.4% upside to our Fair value estimate of $377.71.4
Milestone progress payments yielded $1,196M in operating cash flow in FY2025, fully funding shipyard capex and providing capital return flexibility.6
Strong Buy, because the company's sole-source nuclear naval shipbuilding franchise provides durable multi-decade demand and strong cash generation at a steep discount to intrinsic value.
HUNTINGTON INGALLS INDUSTRIES, INC. designs, develop, and manufacture products and perform services that often involve innovative designs, new technologies, and complex manufacturing processes. Delays and issues with product development, technology implementation, manufacturing, or subcontractor components or services can impact its contract performance.
The Company provides eligible employees defined benefit pension plans, defined contribution benefit plans, and other postretirement benefit plans. Except for the major collectively bargained plan at Ingalls, the Company's qualified defined benefit pension plans are frozen to new entrants.
Under simultaneous skilled labor wage spikes and submarine contract procurement deferrals, operating margins compress below 4.5% while annual revenue growth decelerates toward 2.0%. Sustaining capital outlays of $402M in FY2025 would absorb available cash flow, reducing free cash generation and testing debt coverage.
A downside path develops if skilled labor attrition and wage escalation force overtime spikes and contract adjustments, depressing earnings power. Disconfirmed if apprentice retention improves and on-time vessel deliveries are verified by late FY2026.
Persistent nuclear certified welder shortages force expensive overtime schedules and trigger cumulative catch-up margin reductions on multi-year aircraft carrier and submarine contracts.16
De vijf ontwikkelingen die onze beleggingsthese zouden verzwakken.
A drop below this level indicates that fixed-price construction contracts are absorbing severe labor cost inflation and schedule rework penalties, eroding earnings power and preventing operating profit stabilization across nuclear vessel programs.
Huidig:5.26% in FY2025
Waarschuwing alsDrops below 4.5% over any consecutive 12-month period
Huntington Ingalls holds an irreplaceable franchise as the exclusive builder of nuclear aircraft carriers and leading builder of nuclear submarines for the US Navy. These programs generate durable backlog visibility and insulate core shipbuilding lines from defense peer competition.
However, heavy dry dock capital requirements and government contract pricing keep operating margins at 5.26% in FY2025, restraining economic profits despite exceptional structural barriers.
While structural barriers prevent competitor entry, capital intensity limits return on invested capital to 6.08%, near the 6.62% cost of capital.2
Each lens answers a different valuation question. Only included lenses set Fair value; floors and diagnostics provide context.
The highlighted cell is Fair value when every assumption sits at its base level ($377.71). Each row and column shows what Fair value becomes when one assumption moves.
A free-cash-flow drop test is not available in this run; use the discount-rate and terminal-growth grid as the primary valuation pressure test.
The modal path reflects steady multi-ship block contract conversion, with revenue compounding at low-to-mid single digits and operating margins stabilizing, delivering Fair value $377.71. Disconfirmed if cumulative catch-up charges emerge or skilled worker attrition accelerates through FY2026.
Confirms labor productivity gains across nuclear submarine programs and reinforces progress toward Fair value $377.71.
Validates steady-state compounding and long-term backlog conversion toward Fair value $377.71.
Signals persistent labor cost friction that slows earnings compounding and narrows the margin of safety relative to Fair value $377.71.
Earnings quality is supported by robust cash conversion, with cash from operations exceeding accounting net income as progress billings align with construction milestones.6
Measures whether shipyard labor productivity and contract milestone pacing are overcoming wage inflation.6
Operating cash flow reached $1,196M in FY2025, delivering $794M in free cash flow after $402M in capex. Cash generation exceeded reported net income of $605M, supported by customer progress payments.56
Capital allocation prioritizes sustaining dry dock modernization funded by operating cash flow in FY2025.
Heavy dry dock capital assets and regulated contract margins keep returns near capital cost, reflecting infrastructure characteristics.
Latest return on invested capital of 6.08% trails cost of capital WACC of 6.62%.
Operating cash flow of $1,196M converted 1.98x net income of $605M in FY2025.
Progress payments shield liquidity from multi-year construction working capital swings.
Capital expenditures absorbed $402M in FY2025, exceeding depreciation of $329M.
Nuclear shipyard modernization requires steady reinvestment, limiting surplus discretionary cash.
| Omzet | US$ 12.484.000.000 |
|---|---|
| Kostprijs van de omzet | US$ 10.899.000.000 |
| Brutowinst | US$ 1.585.000.000 |
| Bedrijfskosten | US$ 928.000.000 |
| Bedrijfsresultaat | US$ 657.000.000 |
| Niet-operationele posten en belastingen | US$ -52.000.000 |
| Nettowinst | US$ 605.000.000 |
| Totale activa | US$ 12.749.000.000 |
|---|---|
| Liquide middelen | US$ 774.000.000 |
| Vlottende activa | US$ 3.451.000.000 |
| Totale verplichtingen | US$ 7.676.000.000 |
| Kortlopende verplichtingen | US$ 3.045.000.000 |
| Eigen vermogen | US$ 5.073.000.000 |
| Nettowinst | US$ 605.000.000 |
|---|---|
| Operationele instroom | US$ 1.196.000.000 |
| Afschrijvingen en amortisatie | US$ 329.000.000 |
| Aandelenbeloning | US$ 54.000.000 |
| Overige operationele aanpassingen | US$ 208.000.000 |
| Operationele kasstroom | US$ 1.196.000.000 |
| Beschikbare liquide middelen | US$ 2.027.000.000 |
| Beginstand liquide middelen | US$ 831.000.000 |
| Investeringsuitstroom | US$ 521.000.000 |
| Investeringen | US$ 402.000.000 |
| Overige investeringsactiviteiten | US$ 119.000.000 |
| Financieringsuitstroom | US$ 732.000.000 |
| Betaalde dividenden | US$ 213.000.000 |
| Netto schuldaflossing | US$ 500.000.000 |
| Overige financieringsactiviteiten | US$ 19.000.000 |
| Eindstand liquide middelen | US$ 774.000.000 |
| Investeringskasstroom | US$ -521.000.000 |
| Financieringskasstroom | US$ -732.000.000 |
Bron: SEC EDGAR · Ingediend 2026-02-05 · SEC EDGAR
| Omzet per bedrijfscategorie | Omzet | Aandeel | j-o-j |
|---|---|---|---|
| Product | US$ 8,1 mld. | 65,1% | 9% |
| Service | US$ 4,4 mld. | 34,9% | 6,9% |
Financiële momentopname gebruikt in de analyse van 2026-09-20.
| Periode | Omzet | EBITDA | Nettowinst | Operationele kasstroom | Vrije kasstroom | Investeringen | Afschrijvingen en amortisatie | Aandelenbeloning | Aandeleninkoop | Betaalde dividenden | Netto schuldemissie | Investeringskasstroom | Financieringskasstroom | Beginstand liquide middelen | Eindstand liquide middelen | Kas en beleggingen | Totale schuld | Operationele marge | ROIC | WACC | ROIC−WACC-spread |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2016-12-31 | US$ 7,1 mld. | US$ 1 mld. | US$ 573 mln. | US$ 822 mln. | US$ 537 mln. | US$ 285 mln. | US$ 186 mln. | US$ 36 mln. | US$ 194 mln. | US$ 98 mln. | — | -US$ 653 mln. | -US$ 343 mln. | — | US$ 720 mln. | US$ 720 mln. | US$ 1,3 mld. | 12,4% | — | 6,1% | — |
| 2017-12-31 | US$ 7,4 mld. | US$ 1 mld. | US$ 479 mln. | US$ 814 mln. | US$ 432 mln. | US$ 382 mln. | US$ 205 mln. | US$ 34 mln. | US$ 286 mln. | US$ 115 mln. | — | -US$ 349 mln. | -US$ 484 mln. | US$ 720 mln. | US$ 701 mln. | US$ 701 mln. | US$ 1,3 mld. | 11,8% | — | 5,9% | — |
| 2018-12-31 | US$ 8,2 mld. | US$ 1,2 mld. | US$ 836 mln. | US$ 914 mln. | US$ 451 mln. | US$ 463 mln. | US$ 203 mln. | US$ 36 mln. | US$ 742 mln. | US$ 132 mln. | — | -US$ 476 mln. | -US$ 899 mln. | US$ 701 mln. | US$ 240 mln. | US$ 240 mln. | US$ 1,3 mld. | 11,6% | — | 6,5% | — |
| 2019-12-31 | US$ 8,9 mld. | US$ 980 mln. | US$ 549 mln. | US$ 896 mln. | US$ 366 mln. | US$ 530 mln. | US$ 227 mln. | US$ 30 mln. | US$ 262 mln. | US$ 149 mln. | — | -US$ 627 mln. | -US$ 434 mln. | US$ 240 mln. | US$ 75 mln. | US$ 75 mln. | US$ 1,3 mld. | 8,3% | — | 6,1% | — |
| 2020-12-31 | US$ 9,4 mld. | US$ 1,2 mld. | US$ 696 mln. | US$ 1,1 mld. | US$ 740 mln. | US$ 353 mln. | US$ 247 mln. | US$ 23 mln. | US$ 84 mln. | US$ 172 mln. | — | -US$ 759 mln. | US$ 103 mln. | US$ 75 mln. | US$ 512 mln. | US$ 512 mln. | US$ 1,7 mld. | 8,5% | — | 4,1% | — |
| 2021-12-31 | US$ 9,5 mld. | US$ 1 mld. | US$ 544 mln. | US$ 760 mln. | US$ 429 mln. | US$ 331 mln. | US$ 293 mln. | US$ 33 mln. | US$ 101 mln. | US$ 186 mln. | — | -US$ 2 mld. | US$ 1,3 mld. | US$ 512 mln. | US$ 627 mln. | US$ 627 mln. | US$ 3,3 mld. | 5,4% | — | 4,3% | — |
| 2022-12-31 | US$ 10,7 mld. | US$ 1,2 mld. | US$ 579 mln. | US$ 766 mln. | US$ 482 mln. | US$ 284 mln. | US$ 358 mln. | US$ 36 mln. | US$ 52 mln. | US$ 192 mln. | -US$ 400 mln. | -US$ 268 mln. | -US$ 658 mln. | US$ 627 mln. | US$ 467 mln. | US$ 467 mln. | US$ 2,9 mld. | 5,3% | — | 6,2% | — |
| 2023-12-31 | US$ 11,5 mld. | US$ 1,3 mld. | US$ 681 mln. | US$ 970 mln. | US$ 678 mln. | US$ 292 mln. | US$ 347 mln. | US$ 34 mln. | US$ 75 mln. | US$ 200 mln. | -US$ 480 mln. | -US$ 236 mln. | -US$ 771 mln. | US$ 467 mln. | US$ 430 mln. | US$ 430 mln. | US$ 2,7 mld. | 6,8% | — | 6,1% | — |
| 2024-12-31 | US$ 11,5 mld. | US$ 1,1 mld. | US$ 550 mln. | US$ 393 mln. | US$ 26 mln. | US$ 367 mln. | US$ 326 mln. | US$ 23 mln. | US$ 162 mln. | US$ 206 mln. | US$ 771 mln. | -US$ 348 mln. | US$ 356 mln. | US$ 430 mln. | US$ 831 mln. | US$ 831 mln. | US$ 3,4 mld. | 4,6% | — | 6,4% | — |
| 2025-12-31 | US$ 12,5 mld. | US$ 1,2 mld. | US$ 605 mln. | US$ 1,2 mld. | US$ 794 mln. | US$ 402 mln. | US$ 329 mln. | US$ 54 mln. | US$ 0 | US$ 213 mln. | -US$ 500 mln. | -US$ 521 mln. | -US$ 732 mln. | US$ 831 mln. | US$ 774 mln. | US$ 774 mln. | US$ 3,1 mld. | 5,3% | — | 6,1% | — |
Huntington Ingalls Industries Inc. (HII) trades at 12.7x forward earnings against a peer median of 23.6x. Its EV/EBITDA of 11.7x compares with a peer median of 18.2x. The comparison uses 4 peers: Textron Inc., TransDigm Group Incorporated, GE Aerospace and RTX Corporation, as of 2026-09-20.
Industry capital expenditures track 0.8% of revenue with capex to depreciation of 0.95x, while HII invests at higher intensity with $402M in FY2025 capex to modernize nuclear dry docks.6
Accelerating multi-year naval fleet modernization programs increase Virginia-class submarine build rates and carrier overhaul funding.
Congressional budget caps or procurement pauses stretch delivery schedules, creating fixed shipyard overhead absorption drag.
HII is the cornerstone builder for the US naval fleet, protected by insurmountable dry dock infrastructure barriers.7
Supported by sole-source carrier franchise, multi-decade Navy procurement backlog, and substantial discount to Fair value.
Maintain maximum 6% portfolio weighting, monitoring skilled nuclear welder retention and quarterly progress payment collections to manage contract execution risk.
Irreplaceable nuclear shipbuilding franchise trades at 12.66x forward earnings, providing a wide margin of safety to Fair value of $377.71.4
Sole-source aircraft carrier and submarine backlogs ensure multi-decade revenue visibility and resilient cash flow conversion.67
Strong cash conversion supports $213M in annual dividends and dry dock investments while offering 38.4% capital appreciation potential.6
Accumulate shares up to a 4-6% portfolio allocation given sole-source carrier dominance and 38.4% upside to Fair value of $377.71.4
Progress payments on multi-year Navy contracts shield cash generation, funding shipyard capital investment while maintaining balance-sheet flexibility.
Capture your own thesis, position size, and follow-up questions. Stays on this device, only you can see it.
The records this analysis drew on, as they stood when it was run.
Not every cited input appears here: internal calculations and intermediate model outputs have no external record, and some citations could not be matched to one.
Federal defense budget impasses defer submarine procurement contract tranches, slowing annual revenue expansion below long-term GDP baselines.1
Investors de-rate the equity multiple toward historical trough levels of 11.0x forward earnings as capital returns trail cost of capital benchmarks.24
Macroeconomic volatility and elevated shipyard operational execution risks drive the required return on equity above 8.2%.2
Growth slowing beneath this floor demonstrates that naval procurement appropriations or shipyard throughput bottlenecks are delaying submarine module integration, stalling backlog conversion and curtailing top-line compounding across major defense programs.
Huidig:$8,133M in FY2025
Waarschuwing alsFalls below 2.0% annual expansion through FY2027
Operating cash generation failing to track accounting net income reveals severe working capital absorption from deferred milestone billings or uncompensated customer design changes, impairing sustaining capital expenditure funding for nuclear dry dock infrastructure.
Huidig:$1,196M in FY2025
Waarschuwing alsConverts at less than 0.80x reported net income over a trailing four-quarter window
Capital outlays exceeding this intensity indicate mounting shipyard infrastructure maintenance demands or unbudgeted facility overhauls, consuming discretionary free cash flow and reducing returns generated on invested dry dock assets.
Huidig:$402M in FY2025
Waarschuwing alsExceeds 4.5% of total revenue over any fiscal year
Per-share earnings compressing below this floor demonstrates acute nuclear welder overtime expense surges and contract cumulative catch-up charges, disconfirming near-term margin recovery and impairing long-term earnings compounding.
Huidig:$4.50 projected for Q3 2026
Waarschuwing alsFalls below $3.80 in any single quarter through FY2026
Limitation: Terminal value is 72.7% of this model's value, above the 60% level at which the methodology flags concentration; the value leans on the years beyond the explicit forecast.
Under the moderate discount rate, US$ 150 comes from forecast-period earnings and US$ 308 from the long-term value, totaling US$ 458.
Project EPS through the explicit advantage period, fade growth as competition catches up, and discount the full stream at cost of equity.
Apply a terminal P/E to the dated forward EPS path, then discount that future share value back to the analysis date.
Add depreciation to net income, subtract maintenance capex, divide by diluted shares, and apply a normalized valuation multiple.
Multiply the peer median PEG by this stock's forecast growth to derive an implied forward P/E, then apply it to forward EPS.
Solve for the growth rate that makes the model value equal the report-date share price.
Under accelerated naval appropriations and Virginia-class submarine throughput, digital shipyard productivity drives margin expansion toward Potential value $570.12. Disconfirmed if quarterly operating margins stall or contract awards face legislative delays through FY2027.
Demonstrates whether customer milestone collections keep pace with reported net earnings.6
Reflects per-share earnings power compounding under steady share count.1
Determines the cash drain required to maintain and modernize nuclear dry dock facilities.6
| $14.83B |
| $15.35B |
| $15.81B |
| Operating income | $734.10M | $780.65M | $815.78M | $844.33M | $869.66M |
| NOPAT | $592.94M | $630.53M | $658.90M | $681.96M | $702.42M |
| Residual cash after reinvestment policy | $592.94M | $630.53M | $658.90M | $681.96M | $702.42M |
| Revenue growth | 7.0% | 6.3% | 4.5% | 3.5% | 3.0% |
| Operating margin | 5.5% | 5.5% | 5.5% | 5.5% | 5.5% |
| Tax rate | 19.2% | 19.2% | 19.2% | 19.2% | 19.2% |
| Reinvestment rate | 0.0% | 0.0% | 0.0% | 0.0% | 0.0% |
| Terminal growth | 3.0% | 3.0% | 3.0% | 3.0% | 3.0% |
| Marge |
|---|
| HII | Huntington Ingalls Industries Inc. | $10.8B | 12.7x | 0.8x | 11.7x | 13.0% | — |
| TXT | Textron Inc. | $13.9B | 11.0x | 0.9x | 9.8x | 12.1% | 8.7% |
| TDG | TransDigm Group Incorporated | $60.7B | 22.5x | 6.1x | 17.8x | — | 46.0% |
| GE | GE Aerospace | $326.1B | 34.6x | 6.4x | 29.3x | 48.2% | 20.6% |
| RTX | RTX Corporation | $261.5B | 24.7x | 2.8x | 18.5x | 12.3% | 12.7% |
| Review milestone billing pacing and working capital absorption6 |
