- Price
- $266.19
- Fair value
- $382.00
- Discount
- 30.3%
- Uncertainty
- High
- LSEG rating
- 2.31
- Moat
- Wide
- Next earnings
- 2026-10-29
- Next earnings is estimate
- No
- Company name
- Huntington Ingalls
- Sector
- Defense shipbuilding
- About
- Huntington Ingalls (HII) is the largest military shipbuilder in the US. Newport News Shipbuilding in Virginia is the only US yard that builds nuclear aircraft carriers, and it builds nuclear submarines with General Dynamics' Electric Boat. It also refuels and overhauls carriers. Ingalls Shipbuilding in Mississippi builds amphibious assault ships, destroyers and Coast Guard cutters. Mission Technologies sells unmanned systems, C6ISR, cyber, training and nuclear services, and it had $760 million of revenue in Q2 2026. The US government is almost the only customer, through long contracts that are mostly fixed-price incentive or cost-plus. HII makes money from the margin on these contracts, and the margin moves with its cost performance. Backlog was $57.3 billion at June 30, 2026, and the company has about 45,000 employees.
- Thesis
- HII trades at a discount because investors doubt that it can turn its large backlog into profit and cash. Its shipbuilding margin is low, with guidance of 6.0% to 6.5% for 2026, because labor, supply chain and inflation raise the cost of ships that it builds under long contracts. In Q1 2026, the operating margin fell to 5.0% from 5.9%, and free cash flow was negative $461 million. Free cash flow was negative again in Q2 2026, at $150 million. The full-year target of $500 million to $600 million of free cash flow therefore depends on the second half, and mostly on Q4. The stock fell after both reports, and it set a 52-week low on October 13, 2026. Demand is strong: the Navy awarded the next Virginia-class and Columbia-class submarine contracts in July 2026, and a $5.1 billion overhaul of USS Harry S. Truman in September 2026. Investors want proof that this demand gives better margins. For the gap to close, HII must reach its 15% shipbuilding throughput goal for 2026, keep the shipbuilding margin in the guided range without large unfavorable contract adjustments, deliver positive free cash flow in Q3 2026 and reach $500 million to $600 million for the year, and show that the new submarine contracts have better terms. The first test is the Q3 2026 report on October 29, 2026. The full-year 2026 results and the 2027 outlook, expected in February 2027, are the main test of the cash target. Higher margins need several years of better labor productivity, so the gap probably closes slowly, over two to three years. The main risk is new cost growth on carriers or submarines.
- Risks
- Cost growth on long ship contracts lowers margins. HII records the effect of new cost estimates at once, as cumulative catch-up adjustments. In Q2 2026, gross unfavorable adjustments were $158 million, including $48 million on the overhaul of USS George Washington (CVN 73).
Free cash flow was negative $461 million in Q1 2026 and negative $150 million in Q2 2026. The full-year target of $500 million to $600 million depends on large payments from the Navy in the second half. A delay in contract payments or milestones can move cash into 2027.
Ship output depends on enough skilled workers and on suppliers. HII must reach its goal of 15% more shipbuilding throughput in 2026. A shortage of workers or late parts from suppliers slows work and raises costs.
Almost all revenue comes from the US government. Changes in Navy budgets and shipbuilding plans, a continuing resolution or a government shutdown can delay new contracts and payments.
Cash was only $12 million at June 30, 2026, so HII depends on its operating cash flow and on its $1.7 billion credit facility and commercial paper program during the year.
- Balance sheet
- Cash: $12M
Debt: $2.7B
Net debt: $2.7B
EBITDA, last 12 months: $1.0B
Net debt / EBITDA: 2.7× (medium)
Interest cover: 7.4×
Undrawn credit line: $1.7B, to September 2029
Debt due within 12 months: $0.0M
Last debt due: 2035
Debt is unsecured senior notes plus $21 million of revenue bonds, with no amount drawn on the credit facility or the commercial paper program at June 30, 2026. The first notes to mature are $600 million due December 2027 and $600 million due August 2028. The last notes, $500 million, are due January 2035. HII repaid $500 million of notes in May 2025, so interest expense fell. Cash was only $12 million at June 30, 2026, down from $774 million at December 31, 2025, because free cash flow was negative in the first half and contract liabilities fell to $690 million from $1,220 million. The $1.7 billion revolving credit facility, which also backs the $1.7 billion commercial paper program, runs to September 2029. EBITDA is operating income plus depreciation and amortization for the 12 months to June 2026. Interest cover is for the first half of 2026. At June 30, 2026, the balance sheet showed $1.63 billion of pension plan assets and $155 million of pension plan liabilities.
As of 2026-06-30.
- Checkpoints
- Oct 29, 2026: Q3 2026 results: free cash flow and shipbuilding margin. Pending. Watch: Positive free cash flow, a shipbuilding margin of 6.0% to 6.5% and the full-year free cash flow target kept pass; another quarter of negative cash flow or a cut to the target fails.
Feb 2027 (estimate): Full-year 2026 results and 2027 outlook. Pending. Watch: Free cash flow of $500 million to $600 million for 2026 and a 2027 outlook with a higher shipbuilding margin pass; a cash shortfall or lower margin guidance fails.
May 2027 (estimate): Q1 2027 results: throughput and contract adjustments. Pending. Watch: Higher shipbuilding output with few unfavorable contract adjustments passes; new cost growth on carriers or submarines fails.
- Recent events
- 2026-10-13: The stock set a new 52-week low. Investing.com reported that it fell 32% over the six months before.
2026-10-08: HII said that it will report Q3 2026 results on October 29, 2026, with a conference call at 9 a.m. Eastern time.
2026-09-29: The Navy awarded Newport News Shipbuilding a $5.10 billion contract for the refueling and complex overhaul of the aircraft carrier USS Harry S. Truman (CVN 75). With options, the value can reach about $5.18 billion.
2026-07-30: HII reported Q2 2026 results. Revenue was $3.42 billion, up 10.9%. Diluted EPS was $5.27, up from $3.86. Free cash flow was negative $150 million. HII raised its 2026 shipbuilding revenue guidance to $10.2 billion to $10.4 billion and raised the low end of the shipbuilding margin guidance to 6.0%. It kept its free cash flow target of $500 million to $600 million. Q2 results included an unfavorable adjustment of $48 million on the overhaul of USS George Washington.
2026-07-29: The Navy awarded contracts worth about $76.6 billion, including $5 billion awarded earlier for shipyard improvements, for nine Block VI Virginia-class and five Build II Columbia-class submarines. Electric Boat is the prime contractor, and HII is the main partner. Newport News is the delivery yard for six of the Virginia-class boats, and the work runs to July 2038.
2026-05-05: HII reported Q1 2026 results. Revenue was $3.1 billion, up 13.4%, but the operating margin fell to 5.0% from 5.9%. Free cash flow was negative $461 million. HII kept its 2026 guidance. Workers at Ingalls ratified new labor agreements that run through 2031, and the carrier John F. Kennedy (CVN 79) completed builder's sea trials. The stock fell on the day of the report.