Huntington Ingalls (HII)

Aerospace and defense company Huntington Ingalls (NYSE:HII) reported revenue ahead of Wall Streets expectations in Q3 CY2025, with sales up 16.1% year on year to $3.19 billion. Its GAAP profit of $3.68 per share was 9.4% above analysts’ consensus estimates.

Company Overview

Building Nimitz-class aircraft carriers used in active service, Huntington Ingalls (NYSE:HII) develops marine vessels and their mission systems and maintenance services.

Defense contractors typically require technical expertise and government clearance. Companies in this sector can also enjoy long-term contracts with government bodies, leading to more predictable revenues. Combined, these factors create high barriers to entry and can lead to limited competition. Lately, geopolitical tensions–whether it be Russia’s invasion of Ukraine or China’s aggression towards Taiwan–highlight the need for defense spending. On the other hand, demand for these products can ebb and flow with defense budgets and even who is president, as different administrations can have vastly different ideas of how to allocate federal funds.

Huntington Ingalls’ peers and competitors include Lockheed Martin (NYSE:LMT), Raytheon (NYSE:RTX), and General Dynamics (NYSE:GD)

Reviewing a company’s long-term sales performance reveals insights into its quality. Any business can have short-term success, but a top-tier one grows for years. Regrettably, Huntington Ingalls’s sales grew at a tepid 5.9% compounded annual growth rate over the last five years. This was below our standard for the industrials sector and is a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Huntington Ingalls’s recent performance shows its demand has slowed as its annualized revenue growth of 4.1% over the last two years was below its five-year trend.

We can better understand the company’s revenue dynamics by analyzing its backlog, or the value of its outstanding orders that have not yet been executed or delivered. Huntington Ingalls’s backlog reached $55.7 billion in the latest quarter and averaged 4.9% year-on-year growth over the last two years. Because this number is in line with its revenue growth, we can see the company effectively balanced its new order intake and fulfillment processes.

This quarter, Huntington Ingalls reported year-on-year revenue growth of 16.1%, and its $3.19 billion of revenue exceeded Wall Street’s estimates by 8.1%.

Looking ahead, sell-side analysts expect revenue to grow 3.1% over the next 12 months, similar to its two-year rate. This projection doesn't excite us and suggests its newer products and services will not catalyze better top-line performance yet.

Huntington Ingalls was profitable over the last five years but held back by its large cost base. Its average operating margin of 5.8% was weak for an industrials business.

Looking at the trend in its profitability, Huntington Ingalls’s operating margin decreased by 2.3 percentage points over the last five years. This raises questions about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability. Huntington Ingalls’s performance was poor no matter how you look at it - it shows that costs were rising and it couldn’t pass them onto its customers.

In Q3, Huntington Ingalls generated an operating margin profit margin of 5%, up 2.1 percentage points year on year. This increase was a welcome development and shows it was more efficient.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Huntington Ingalls’s flat EPS over the last five years was below its 5.9% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

We can take a deeper look into Huntington Ingalls’s earnings to better understand the drivers of its performance. As we mentioned earlier, Huntington Ingalls’s operating margin expanded this quarter but declined by 2.3 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; interest expenses and taxes can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Huntington Ingalls, its two-year annual EPS growth of 4.5% was higher than its five-year trend. Accelerating earnings growth is almost always an encouraging data point.

In Q3, Huntington Ingalls reported EPS of $3.68, up from $2.56 in the same quarter last year. This print beat analysts’ estimates by 9.4%. Over the next 12 months, Wall Street expects Huntington Ingalls’s full-year EPS of $14.47 to grow 12.1%.

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

Huntington Ingalls has shown weak cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 4.4%, subpar for an industrials business.

Taking a step back, we can see that Huntington Ingalls’s margin dropped by 3.2 percentage points during that time. It may have ticked higher more recently, but shareholders are likely hoping for its margin to at least revert to its historical level. Almost any movement in the wrong direction is undesirable because of its relatively low cash conversion. If the longer-term trend returns, it could signal it’s in the middle of an investment cycle.

Huntington Ingalls broke even from a free cash flow perspective in Q3. The company’s cash profitability regressed as it was 4.4 percentage points lower than in the same quarter last year, suggesting its historical struggles have dragged on.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Huntington Ingalls historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 9.2%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, Huntington Ingalls’s ROIC decreased by 4.7 percentage points annually over the last few years. Paired with its already low returns, these declines suggest its profitable growth opportunities are few and far between.

Huntington Ingalls reported $312 million of cash and $2.93 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $895 million of EBITDA over the last 12 months, we view Huntington Ingalls’s 2.9× net-debt-to-EBITDA ratio as safe. We also see its $25 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Huntington Ingalls blew past analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. Zooming out, we think this was a good print with some key areas of upside. The stock traded up 5.3% to $314.25 immediately following the results.

Updated: December 4, 2025 at 10:22 PM EST

Before investing in or passing on Huntington Ingalls, we urge you to understand the company’s business quality (or lack thereof), valuation, and the latest quarterly results - in that order.

We see the value of companies helping their customers, but in the case of Huntington Ingalls, we’re out. First off, its revenue growth was uninspiring over the last five years, and analysts expect its demand to deteriorate over the next 12 months. And while its projected EPS for the next year implies the company’s fundamentals will improve, the downside is its declining EPS over the last five years makes it a less attractive asset to the public markets. On top of that, its diminishing returns show management's prior bets haven't worked out.

Huntington Ingalls’s P/E ratio based on the next 12 months is 19.1x. At this valuation, there’s a lot of good news priced in - we think there are better stocks to buy right now.

Wall Street analysts have a consensus one-year price target of $331.89 on the company (compared to the current share price of $318.92).