Shares of Huntington Ingalls Industries, Inc. (HII) reached a 52-week high of $117.91 on Jan 8. In fact, the largest military shipbuilder in the U.S. has seen its stock price climb about 33.15% in the past one year, outperforming the S&P 500 peer group average of 12.58% over the same time frame.
Why the Bullishness?
On Jan 7, 2015, analysts at Bank of America (BAC) upgraded Huntington Ingalls Industries to Buy from Neutral as they were impressed with the company’s strategy of using its strong free cash flow to pay down debt.
The largest military shipbuilder in the U.S., Huntington Ingalls is the prime industrial employer in Virginia. Huntington Ingalls, originally an affiliate of Northrop Grumman Corp. (NOC), was spun off in Mar 2011.
The company has delivered positive earnings surprises in three of the last four quarters, with an average beat of 12.32%.
Apart from its strong operational performance, the company also made investor friendly moves, thereby attracting potential investors. Recently, the company doubled its quarterly cash dividend to 40 cents a share. This brought the annualized payout to $1.60 per share from its earlier dividend of 80 cents a share. Additionally, the company’s board of directors boosted its share repurchase program from $300 million to $600 million and extended the program’s deadline from Oct 31, 2017 to Oct 31, 2019.
The company nonetheless is more protected than other defense contractors from budget cuts as the U.S. defense department is expanding its fleet of submarines and destroyers and introducing a new version of aircraft carriers, with emphasis on the Asian-Pacific region.
The company has an expected earnings growth rate of 24.77% with the forward price to earnings (P/E) multiple of 13.78 at a 20.3% discount to the S&P 500 peer group average.
Zacks Rank
Huntington Ingalls holds a Zacks Rank #2 (Buy). Another company in the sector with the same rank includes General Dynamics Corp. (GD).
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