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Valued at a market cap of $7.8 billion, Huntington Ingalls Industries, Inc. (HII) designs, builds, overhauls, and repairs military ships in the United States. The Virginia-based company also provides a wide range of professional services, including defense and federal solutions, nuclear and environmental services, and unmanned systems.
Shares of this shipbuilding company have significantly underperformed the broader market over the past 52 weeks. HII has declined 16.9% over this time frame, while the broader S&P 500 Index ($SPX) has gained 32.1%. Moreover, the stock is down nearly 23.8%, compared to SPX’s 26.2% gain on a YTD basis.
Zooming in further, HII’s underperformance looks even more pronounced when compared to the Industrial Select Sector SPDR Fund’s (XLI) 35.1% gain over the past 52 weeks and 26.1% return on a YTD basis.
On Nov. 21, HII’s Newport News Shipbuilding division was recognized with the 2024 Governor’s Volunteerism & Community Service Award by Virginia Gov. Glenn Youngkin. The news excited the investors and led to a 2.6% increase in HII’s stock price.
However, on Oct. 31, shares of HII fell sharply by 26.2% after its weaker-than-expected Q3 earnings release. The company’s EPS declined 30.8% year-over-year to $2.56 and missed the consensus estimates of $3.84 by a huge margin. Its revenue of $2.75 billion also fell 2.4% from a year ago and missed the Wall Street estimates of $2.88 billion.
The weak performance was primarily driven by a decline in sales volume from its Ingalls and Newport News business segments, mainly fueled by lower volumes in amphibious assault ships coupled with lower volumes in naval nuclear support
services and unfavorable cumulative adjustments on the Virginia-class submarine program.
For the current fiscal year, ending in December, analysts expect HII’s EPS to decline 14.3% year over year to $14.63. The company’s earnings surprise history is mixed. It beat the consensus estimates in three of the last four quarters while missing on another occasion.
Among the ten analysts covering the stock, the consensus rating is a “Hold,” which is based on one “Strong Buy,” seven “Hold,” one “Moderate Sell,” and one “Strong Sell” rating.
The configuration is significantly less bullish than three months ago, with four analysts suggesting a “Strong Buy.”
On Nov. 14, BofA maintained an “Underperform” rating on HII and lowered its price target to $195, which indicates a 1.5% downside from the current levels.
The mean price target of $222.40 represents a 12.3% potential upside from HII’s current price levels. The Street-high price target of $294 suggests a modest upside potential of 48.5%.
