Amid Market Turmoils, Huntington Ingalls Remains Steady

As investors turn toward stabler companies amid the heightened market volatility in recent months, one corporation which should not be ignored is Huntington Ingalls Industries (NYSE: HII). A spin-off of its better-known cousin, aerospace titan Northrop Grumman, Huntington Ingalls is a shipbuilder serving the defensive needs of the US government. Established in Newport News, Virginia over a century ago, the 39,000-employee corporation designs, manufactures, and services nuclear and non-nuclear powered aircraft carriers and submarines for the U.S. Navy and Coast Guard.
Huntington Ingalls has secured several exclusive contracts with the government, ensuring a consistent revenue flow of approximately $6.8 billion annually. As the sole builder of all American aircraft carriers and exclusive refueler for nuclear-powered carriers, it possesses an entrenched “margin of safety” around its services. Additionally, Huntington Ingalls supplies 70 percent of the Navy’s fleet, competing only with General Dynamics (NYSE: GD) in manufacturing nuclear-powered submarines. Since its main customer is the government, the company is rendered virtually recession-proof, making it immune to the periodic vacillations plaguing other industries.
Valued at $5.6 billion, Huntington Ingalls boasts strong financials; apart from its monopoly over aircraft carriers, it also pays a dividend of 1.38%. Although top-line growth has remained effectively stagnant, with sales and revenue fluctuating 1-2 percent per annum, this is to be expected when considering the relatively stable needs of its clientele. Nevertheless, Huntington Ingalls’ bottom line—gross income—has increased by 5.8 and 14.8 percent between 2011-2012 and 2012-2013, respectively. Nearly all revenues are procured through the sale of products and services to the U.S. government, and a backlog of orders worth an estimated $23 billion ensures that the company has a sizable safety cushion in the near future.
The dependence of Huntington Ingalls on government allocation of defense funding to the U.S. Navy and Coast Guard is both a boon and a potential barrier to future growth; budget sequestration has insofar not affected Huntington Ingalls significantly, as the Department of Defense prioritizes the US’s presence in the Asian-Pacific region.
Overall, Huntington Ingalls’ moat around its business, stable clientele and revenue, increasing gross income, and payout of dividend make it an excellent potential long term investment.

Advertisements

Leave a Reply

Fill in your details below or click an icon to log in:

WordPress.com Logo

You are commenting using your WordPress.com account. Log Out /  Change )

Google+ photo

You are commenting using your Google+ account. Log Out /  Change )

Twitter picture

You are commenting using your Twitter account. Log Out /  Change )

Facebook photo

You are commenting using your Facebook account. Log Out /  Change )

Connecting to %s