Huntington Ingalls Industries Q4 Earnings Outperform Market: Here’s the Outlook for 2024

Newport News, VA – In December 2023, I began covering Huntington Ingalls Industries stock with a buy rating and since then, the stock has outperformed the broader markets with a 7% gain. Recently, Huntington Ingalls Industries reported fourth quarter earnings, prompting a reevaluation of the company’s prospects.

The investment thesis for Huntington Ingalls Industries revolves around its long-term shipbuilding plans and a strong $48 billion backlog, providing potential for growing free cash flow, shareholder returns through dividends, and share repurchases. However, the recent earnings report revealed a more detailed picture of the company’s performance.

The fourth quarter results showed significant growth in revenues with a 13% increase, as well as notable increases in operating income across the company’s three segments: Ingalls Shipbuilding, Newport News Shipbuilding, and Mission Technologies. However, there were some one-time factors driving the growth, such as the sale of a court judgment against Venezuela.

For the full year, Huntington Ingalls Industries reported a 7.3% increase in sales to $11.45 billion, with strong performances in all three segments contributing to the overall growth. Despite this, the company’s outlook for 2024 shows a more conservative approach, with expectations of flat to modest growth in revenues and operating income.

Looking ahead, the company’s elevated capital expenditures in the coming years may limit its ability to return capital to shareholders, impacting the overall valuation of the stock. This development has led to the shift in recommendation from a buy to a hold, signaling a reevaluation of the stock’s long-term potential.

Despite the near-term challenges, Huntington Ingalls Industries continues to maintain a strong dividend, providing a forward yield of 1.9%. This makes it an attractive option for investors with a long-term focus, although its fundamental upside may be constrained in the coming years.

Overall, the latest earnings report and guidance from Huntington Ingalls Industries paint a more nuanced picture of the company’s prospects. While the stock may not offer explosive growth, it still presents investment opportunities for those aligned with its long-term shipbuilding plans and dividend yield.