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Why Is Huntington Ingalls (HII) Up 14.4% Since Last Earnings Report?

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A month has gone by since the last earnings report for Huntington Ingalls (HII - Free Report) . Shares have added about 14.4% in that time frame, outperforming the S&P 500.

Will the recent positive trend continue leading up to its next earnings release, or is Huntington Ingalls due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at its most recent earnings report in order to get a better handle on the important drivers.

Huntington Ingalls Q4 Earnings Miss, Revenues Rise Y/Y

Huntington Ingalls’fourth-quarter 2020 adjusted earnings of $4.35 per share missed the Zacks Consensus Estimate of $4.49 by 3.1%. Moreover, the bottom line improved 47% from $2.96 reported in the prior-year quarter.

The company reported GAAP earnings of $6.15 per share compared with $3.61 recorded in the fourth quarter of 2019.

For 2020, the company reported adjusted earnings of $10 per share, which missed the Zacks Consensus Estimate of $15.47. The full-year earnings figure also came in lower than the year-ago reported figure of $10.66.

Total Revenues

Total revenues came in at $2,757 million, exceeding the Zacks Consensus Estimate of $2,466 million by 11.8%. The top line also improved 14.3% from $2,412 million in the year-ago quarter. The increase was driven by growth in both Newport News and Ingalls Shipbuilding divisions.

For 2020, the company recorded revenues worth $9.36 billion, which exceeded the Zacks Consensus Estimate of $9.07 billion. Full-year revenues also came in higher than $8.90 billion recorded in 2019.

Operational Performance

Huntington Ingalls reported total operating income of $305 million compared with operating income of $186 million in the fourth quarter of 2019. The company’s operating margin came in at 11.1%, up 335 basis points (bps) from the prior-year quarter.

Huntington Ingalls received orders worth $3.5 billion during the fourth quarter. As a result, the company’s total backlog reached $46 billion as of Dec 31, 2020.

Segmental Performance

Newport News Shipbuilding: Revenues totaled $1,750 million in this segment, up 25.1% year over year on account of higher revenues in submarine and aircraft carrier construction. Higher revenues from refueling and complex overhaul (RCOH) also contributed to this unit’s revenue growth in the fourth quarter.

Meanwhile, the segment reported operating earnings of $128 million in the quarter, which declined 6.6% year over year. The segment’s operating margin contracted 248 bps to 7.3%.

Ingalls Shipbuilding: Revenues in this segment totaled $752 million, up 7.1% year over year by higher revenues in surface combatants and amphibious assault ships.

Also, operating income improved 62.7% year over year to $96 million while operating margin expanded bps to 12.8%.

Technical Solutions: Revenues in this segment totaled $311 million, down 11.1% year over year on account of lower revenues at the oil and gas reporting unit, as well as lower revenues at the San Diego Shipyard due to the conclusion of several repair contracts.

However, operating income improved to $18 million against operating expenses of $23 million incurred in  fourth-quarter 2019. The unit’s operating margin improved to 5.8%.

Financial Update

Cash and cash equivalents as of Dec 31, 2020 were $512 million, significantly up from $75 million as of Dec 31, 2019.

Long-term debt as of Dec 31, 2020 was $1,686 million compared with the 2019-end level of $1,286 million.

Cash from operating activities at the end of 2020 grossed $1,093 million, up from the previous year’s $896 million.

2021 Outlook

The company currently expects to generate revenues worth $8.2-$8.4 billion from its Shipbuilding business in 2021 and approximately $1 billion from technical solutions.

Huntington Ingalls also projects to generate free cash flow in the range of $150-$250 million

How Have Estimates Been Moving Since Then?

It turns out, estimates review have trended upward during the past month.

VGM Scores

Currently, Huntington Ingalls has a great Growth Score of A, a grade with the same score on the momentum front. Following the exact same course, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.

Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.

Outlook

Estimates have been trending upward for the stock, and the magnitude of this revision indicates a downward shift. Notably, Huntington Ingalls has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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