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Should Value Investors Consider Huntington Ingalls (HII)?

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Value investing is easily one of the most popular ways to find great stocks in any market environment. After all, who wouldn’t want to find stocks that are either flying under the radar and are compelling buys, or offer up tantalizing discounts when compared to fair value?

One way to find these companies is by looking at several key metrics and financial ratios, many of which are crucial in the value stock selection process. Let’s put Huntington Ingalls Industries, Inc. (HII - Free Report) stock into this equation and find out if it is a good choice for value-oriented investors right now, or if investors subscribing to this methodology should look elsewhere for top picks:

PE Ratio

A key metric that value investors always look at is the Price to Earnings Ratio, or PE for short. This shows us how much investors are willing to pay for each dollar of earnings in a given stock, and is easily one of the most popular financial ratios in the world. The best use of the PE ratio is to compare the stock’s current PE ratio with: a) where this ratio has been in the past; b) how it compares to the average for the industry/sector; and c) how it compares to the market as a whole.

On this front, Huntington Ingalls has a trailing twelve months PE ratio of 19.5, as you can see in the chart below:



This level is significantly favorable with the market at large, as the PE for the S&P 500 compares in at about 20.8. If we focus on the stock’s long-term PE trend, the current level puts Huntington Ingalls’s current PE ratio above its midpoint over the past five years, with the number having risen rapidly over the past year.



Further, the stock’s PE also compares favorably with its industry’s trailing twelve months PE ratio, which stands at 23.2. At the very least, this indicates that the stock is relatively undervalued right now, compared to its peers.



We should also point out that Huntington Ingalls has a forward PE ratio (price relative to this year’s earnings) of 19.7, so it is fair to expect an increase in the company’s share price in the near future.

P/S Ratio

Another key metric to note is the Price/Sales ratio. This approach compares a given stock’s price to its total sales, where a lower reading is generally considered better. Some people like this metric more than other value-focused ones because it looks at sales, something that is far harder to manipulate with accounting tricks than earnings.

Right now, Huntington Ingalls has a P/S ratio of about 0.6. This is significantly lower than the S&P average, which comes in at 1.5 right now. Also, as we can see in the chart below, this is below the highs for this stock in particular over the past few years.



If anything, this suggests some level of undervalued trading—at least compared to historical norms.

Broad Value Outlook

In aggregate, Huntington Ingalls currently has a Zacks Value Style Score of A, putting it into the top 20% of all stocks we cover from this look. This makes HII a solid choice for value investors, and some of its other key metrics make this pretty clear too.

For example, the PEG ratio for Huntington Ingalls is 1.3, a level that is lower than the industry average of 1.9. Clearly, HII is a solid choice on the value front from multiple angles.

What About the Stock Overall?

Though Huntington Ingalls might be a good choice for value investors, there are plenty of other factors to consider before investing in this name. In particular, it is worth noting that the company has a Growth grade of D and a Momentum score of C. This gives HII a Zacks VGM score—or its overarching fundamental grade—of B. (You can read more about the Zacks Style Scores here >>)

Meanwhile, the company’s recent earnings estimates have been encouraging. The full-year 2017 has seen five estimates go higher in the past thirty days and none lower, while the full-year 2018 estimate has seen three upward revisions and no downward revision in the same time period.

As a result, consensus estimate for 2017 has increased by 4.2% in the past month, while 2018 estimate has moved north by 1.9%. You can see the consensus estimate trend and recent price action for the stock in the chart below:

Huntington Ingalls Industries, Inc. Price and Consensus

This favorable trend is why the stock has just a Zacks Rank #2 (Buy) and why we are looking for better performance from the company in the near term.

Bottom Line

Huntington Ingalls is an inspired choice for value investors, as it is hard to beat its incredible lineup of statistics on this front. A decent industry rank (top 39% out of more than 250 industries) further supports the growth potential of the stock. Also, over the past one year, its industry has clearly outperformed the broader market, as you can see below:



So, it might pay for value investors to delve deeper into the company’s prospects, as fundamentals indicate that this stock could be a compelling pick.

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