TD Cowen reaffirmed its Buy rating on shares of Huntington Ingalls Industries (NYSE:HII) with a stable price target of $290.00. The defense contractor's future cash flow projections have been adjusted, with a $500 million reduction anticipated for calendar year 2024 (C24). This revision is based on the expectation that Huntington Ingalls will not complete negotiations for 17 submarines with the U.S. Navy by the end of December 2024.
The firm's analyst predicts that the impact of the delayed contract finalization will be reflected in the financial results of calendar year 2025 (C25). Additionally, adjustments were made to the second half of the year's earnings per share (EPS) estimates to account for increased sales and earnings before interest and taxes (EBIT) from the company's Mechanical Tubing (MT) segment. However, these gains are somewhat offset by a potential delay in the "float off" of submarine SSN 800, now expected to slip from the fourth quarter of 2024 into 2025.
The analyst also anticipates that Huntington Ingalls may announce a reduction in their forecasted free cash flow (FCF) for C24 during the third-quarter earnings report. This potential guidance cut could temporarily affect the stock's performance in the near term (NT).
Huntington Ingalls is known for its construction and repair services for ships, including nuclear and non-nuclear vessels, for the U.S. Navy and Coast Guard. The company's ability to secure and finalize government contracts is a significant aspect of its business model and financial health.
The analyst's commentary provides insight into expected financial adjustments and their potential impact on the company's stock in the upcoming quarters.
Huntington Ingalls Industries (HII) has secured an expanded credit facility of $1.7 billion, enhancing its financial strength. This move is accompanied by a record second-quarter revenue of $3 billion for 2024, marking a 6.8% increase from the previous year.
The company also reported a rise in diluted earnings per share to $4.38, up from $3.27 in the same quarter of 2023.
HII has been active on the contract front, securing a $30 million task order to support the U.S. Air Force's presidential and executive aircraft fleet, and a $209 million contract for the support of the U.S. Air Force's fighter and bomber weapons systems.
However, JPMorgan has adjusted its stance on HII, shifting the rating from "Overweight" to "Neutral" due to concerns about near-term confidence, while increasing its price target for the company's stock to $285.
InvestingPro Insights
As Huntington Ingalls Industries (NYSE:HII) navigates through contract negotiations and potential delays, it's worth noting that the company has a history of consistent dividend growth, having raised its dividend for 13 consecutive years. This track record could be a sign of financial resilience and commitment to shareholder returns, particularly relevant for investors who value income alongside capital gains.
From a valuation standpoint, HII is currently trading at a P/E ratio of 14.26, which appears modest when considering near-term earnings growth. This might suggest that the stock is reasonably valued in the market, especially when taking into account the company's profitability over the last twelve months and analysts' predictions of profitability for this year.
However, investors should be aware of the challenges highlighted by InvestingPro Tips, such as the downward revisions of earnings by analysts for the upcoming period and the company's weak gross profit margins. These factors, alongside the concern that short-term obligations exceed liquid assets, could present risks that are important to monitor.
For those looking to dive deeper, InvestingPro offers additional tips on HII. As of now, there are 9 more InvestingPro Tips available that could provide further insights into the company's performance and potential investment opportunities.
Investors may also find the real-time data provided by InvestingPro useful. HII's revenue growth over the last twelve months stood at 8.04%, with a gross profit margin of 14.56%. Additionally, the company's return on assets was 6.75%, which could be indicative of efficient asset utilization. The current dividend yield is 1.94%, which in conjunction with the company's history of dividend growth, might be attractive to dividend-seeking investors.
For those interested in exploring these metrics further and accessing additional investment tips, they can visit InvestingPro's comprehensive analysis at: https://www.investing.com/pro/HII
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