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Huntington Ingalls (HII) Down 4.7% Since Last Earnings Report: Can It Rebound?

Zacks Equity Research

A month has gone by since the last earnings report for Huntington Ingalls (HII). Shares have lost about 4.7% in that time frame, underperforming the S&P 500.

Will the recent negative trend continue leading up to its next earnings release, or is Huntington Ingalls due for a breakout? 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 catalysts.

Huntington Ingalls Q4 Earnings Top, Revenues Up Y/Y

Huntington Ingalls Industries’ fourth-quarter 2018 earnings of $4.94 per share surpassed the Zacks Consensus Estimate of $4.45 by 11%. The reported figure also improved a massive 250.4% from $1.41 a year ago on solid revenue growth.

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For 2018, the company reported earnings of $19.09 per share, which outpaced the Zacks Consensus Estimate of $18.84 by 1.3%. The bottom line also improved a solid 82.5% from $10.46 registered a year ago.

Total Revenues

Total revenues came in at $2.20 billion exceeding the Zacks Consensus Estimate of $2.06 billion by 6.9%. The top line also rose 10.2% from $2 billion registered in the year-ago quarter. The upside can be attributed to higher sales volume at all the three business divisions of the company.

In 2018, the company generated revenues of $8.18 billion, which once again outpaced the Zacks Consensus Estimate of $8.03 billion by 1.9% and improved 9.9% from $7.44 billion registered in the prior year.

Segment Details

Newport News Shipbuilding: Revenues totaled $1,278 million at this segment, up 12.2% year over year backed by higher revenues in naval nuclear support services and aircraft carriers. Meanwhile, operating income declined 46.2% to $57 million due to poor performance in the VCS program, primarily Delaware (SSN 791) and Montana (SSN 794), and higher risk retirement on the RCOH program during fourth-quarter 2017.

Ingalls Shipbuilding: Revenues at this segment came in at $699 million, up 9.6% year over year on account of higher revenues in amphibious assault ships and surface combatants. Also, operating income improved 12% to $84 million driven by higher volumes and higher risk retirement for the DDG and NSC programs.

Technical Solutions: Revenues at this segment summed $267 million, up 10.3% year over year. The upside was driven by increased revenues from oil and gas services and mission driven innovative solutions. Operating income totaled $7 million compared with $8 million in the year-ago quarter.

Backlog

Huntington Ingalls received new orders worth $3.3 billion in the fourth quarter. As a result, the company’s total backlog reached $23 billion as of Dec 31, 2018.

Financial Update

Cash and cash equivalents as of Dec 31, 2018, were $240 million, significantly down from $701 million as of Dec 31, 2017.

Long-term debt, as of Dec 31, 2018, was $1,283 million compared with the 2017-end level of $1,279 million.

Cash from operating activities, at the end of 2018, grossed $914 million compared with $814 million at the end of 2017.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed a downward trend in fresh estimates. The consensus estimate has shifted -9.49% due to these changes.

VGM Scores

Currently, Huntington Ingalls has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with an F. However, 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 broadly trending downward for the stock, and the magnitude of this revision looks promising. 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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