Why Huntington Ingalls Stock Popped 6% Today

Source The Motley Fool

Huntington Ingalls (NYSE: HII) stock has been a losing bet for defense investors this month. Shares of the Navy shipbuilder got torpedoed for an 18% loss in the first week of February after "missing earnings" in its Q4 2024 report. Bouncing back briefly, the stock continued to float around the $160-a-share level -- until today.

Huntington Ingalls stock is getting a lift from investment banker Citigroup, which issued a note over the holiday weekend, in which it suggested the stock is being unfairly punished for its miss. As of 2:50 p.m. ET, the stock was up around 5%.

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What Citi says about Huntington Ingalls

In a brief note carried on The Fly this morning, Citi cut its Huntington Ingalls price target to $235 per share. Nevertheless, the banker maintained its "buy" rating on HII stock.

Unfortunately for investors, The Fly had no further details on Citi's thinking -- nothing to really guide us whether the analyst's optimism holds water -- but that's OK. We're clever investors, right? We can figure this out ourselves!

Is Huntington Ingalls stock really a buy?

So, what do we know about Huntington Ingalls stock, based on the latest numbers from management?

Well, we know the company's sales are stalled. Revenue grew less than 1% in 2024, compared to 2023, to $11.5 billion. But we also know that with a $6.3 billion market capitalization, HII stock costs only about 0.55 times trailing sales, which historically has been a cheap valuation for a defense stock.

Even accounting for the company's $2.6 billion in net debt on the balance sheet, HII stock sells for an enterprise value-to-sales ratio of less than 0.8x. While not as cheap as 0.55, it's still pretty cheap!

The stock looks similarly cheap when valued on earnings. Its P/E ratio is only 11.5, quite appropriate for an 11% long-term projected earnings growth rate. And the stock pays a 3.3% dividend yield. Really, the biggest knock against HII stock today is its weak free cash flow.

If you can forgive it that small fault, I think there's plenty of reason to call Huntington Ingalls stock a buy.

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Citigroup is an advertising partner of Motley Fool Money. Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.

Disclaimer: For information purposes only. Past performance is not indicative of future results.
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