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Investing.com - TD Cowen upgraded Huntington Ingalls (NYSE:HII) from Hold to Buy on Thursday, setting a price target of $300.00 as the firm sees significant margin improvement potential for the shipbuilder. The stock has shown strong momentum with a 32.8% return over the past six months, according to InvestingPro data.
The upgrade highlights how Huntington Ingalls’ shipbuilding margins hit a low of 5.2% in 2024, affected by post-COVID challenges including worker attrition, reduced productivity, and cost overruns on fixed-price contracts. TD Cowen notes that management believes 9-10% ship margins are realistic as COVID-impacted vessels become a smaller percentage of the mix. InvestingPro analysis shows the company maintains a gross profit margin of 12.8% and is currently profitable with a P/E ratio of 17.9x.
The firm projects that Huntington Ingalls is negotiating contracts for 10 VCS Block 6 submarines and 5 Columbia Class submarines, with potential signings by December 31 that could double the company’s current $42 billion ship backlog. The Navy appears more willing to protect the shipbuilder from uncontrollable costs like labor escalation and supplier inflation. With a market capitalization of $9.77 billion and consistent dividend payments for 14 consecutive years, the company demonstrates strong financial stability.
Beyond 2025, TD Cowen identifies additional contract opportunities including CVN-75 RCOH in 2026, two more aircraft carriers in 2027, and 10 destroyers around 2028, supporting long-term revenue visibility.
The investment firm also notes that Huntington Ingalls stock trades at more than a 20% discount to the S&P 500, despite having "extended, visible demand, big margin headroom, and huge entry barriers," while the current administration has been supportive of U.S. shipbuilding.
In other recent news, HII announced the launch of the Virginia-class submarine Arkansas into the James River, marking a significant milestone for its Newport News Shipbuilding division. The submarine, designed with advanced capabilities, is the 27th of its class and the 13th to be delivered by the company. In addition, HII secured a notable order from Hitachi (OTC:HTHIY) for more than a dozen REMUS 300 underwater vehicles, enhancing its commercial program and strengthening its relationship with Japan. The REMUS 300 vehicles are known for their modular design and multi-mission adaptability. Furthermore, HII has entered a strategic partnership with C3.ai (NYSE:AI) to integrate AI solutions into its shipbuilding operations, aiming to enhance production efficiency and support the U.S. Navy’s fleet readiness. HII was also awarded a $60 million contract modification for work on the USS Nimitz, focusing on advance planning and material procurement for the aircraft carrier’s inactivation and defueling. Additionally, HII’s Mission Technologies division secured a spot on a $379 million U.S. Army training contract, enabling the company to compete for delivery orders under the Live Training, Ranges and Combat Training Centers program. These developments highlight HII’s expanding role in defense solutions and strategic partnerships.
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