Why Has Huntington Ingalls (HII) Stock Up 6.6% Since Its Last Earnings Report?

It’s been about a month since the last earnings report Huntington Ingalls Industries, Inc. HII. Shares are up about 6.6% in that time.

Will the recent positive trend continue leading up to its next earnings release, or is HII due for a pullback? Before we dive into how investors and analysts have been reacting as of late, let’s take a quick look at the most recent earnings report to better understand the important catalysts.

Huntington Ingalls Q1 Earnings Below Expectations, Revenues Up YoY

Huntington Ingalls Industries’ first-quarter 2018 earnings of $3.48 per share were 14.5% below the Zacks Consensus Estimate of $4.07. However, net income improved 36% from $2.56 a year earlier.

Total revenue

Total revenues were $1.87 billion, surpassing the Zacks Consensus Estimate of $2.01 billion by 6.2%. The top line also increased 8.7% from $1.72 billion a year earlier, driven by higher sales at the Newport News and Ingalls shipbuilding divisions.

Segment Details

Shipbuilding in Newport News: Revenues totaled $1,082 million, up 11.4% year-over-year, supported by higher revenues from Navy and carrier nuclear support services. Operating income decreased 29.2% to $51 million due to one-time bonus payments in 2018 related to the recently enacted federal tax reform. Additionally, differences in contract mix from year to year impacted operating income.

Ingalls Shipbuilding: Segment revenues were $585 million, up 6.4% year over year on higher revenues from amphibious ships. Operating income fell 3% to $64 million due to lower NSC program exit risk.

Technical solutions: Revenue for this segment was $233 million, up 3.6% year over year, driven by higher revenue from oil and gas services and fleet support. Operating income was $2 million, compared with an operating loss of $18 million in the same quarter a year earlier.

Arrears

Huntington Ingalls received $2.6 billion in new orders in the first quarter, bringing the company’s total order backlog to $22 billion as of March 31, 2018.

Financial update

Cash and cash equivalents at March 31, 2018 amounted to $528 million, down from $701 million at December 31, 2017.

Long-term debt as of March 31, 2018 amounted to USD 1,280 million, compared to USD 1,279 million at the end of 2017.

Cash provided by operating activities at the end of the first quarter of 2018 was $120 million, compared to $98 million at the end of the first quarter of 2017.

How have estimates changed since then?

Investors have witnessed a downward trend in new estimates over the past month. There has been one downward revision in the current quarter.

Huntington Ingalls Industries, Inc. Price and consensus

Huntington Ingalls Industries, Inc. Price and consensus | Huntington Ingalls Industries, Inc. Quote

VGM Results

At the moment, HII has a great growth score of A, although it lags behind in terms of momentum, earning a C rating. The stock has been given a B rating on the value side, which places it in the second quintile of this investment strategy.

Overall, the stock has a Composite VGM Score of B. If you’re not focused on a single strategy, this rating should interest you.

Based on our ratings, these stocks are primarily suited to growth investors, but will also appeal to those looking for value and, to a lesser extent, momentum.

Perspectives

The stock is trending lower, and the magnitude of this revision indicates a downward shift. It is no surprise that HII has a Zacks Rank #4 (Sell). We expect a below-average return for the stock over the next few months.

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