After a series of disconcerting earnings reports from defense majors Lockheed Martin, Northrop Grumman, and RTX Corporation in January, the Q4 earnings report from Huntington Ingalls (HII 0.36%), released on Thursday last week, must have come as a relief.

Q4 revenue at the military shipbuilder surged 13% year over year, hitting a new quarterly record of $3.2 billion -- and accelerating from, and nearly doubling, the company's full-year revenue growth rate of 7%. Earnings per share for the quarter more than doubled, to $6.90, helping to lift full-year earnings 18% to $17.07 per share.

At less than 16 times earnings, with 13% growth and a dividend yield of 2%, Huntington Ingalls stock looks almost perfectly priced for value investors who seek to buy stocks selling around 1.0 in PEG ratio.

And wouldn't you know it? Huntington Ingalls is buying back its stock, too.

Huntington Ingalls: Defense stock, value stock investor

On Jan. 31, 2023, nearly a week before announcing earnings, the board of directors at Huntington Ingalls announced it was adding $600 million to its share repurchase authorization. As of today, the company is officially authorized to buy back as much as $3.8 billion of its own shares, a sum that, at current prices, amounts to more than 36% of all shares outstanding.

Coming before the earnings release, that announcement dropped a heavy hint that earnings might be good. Conversely, though, some investors might have interpreted the announcement as a warning sign, given that companies often try to head off negative reactions to "bad" earnings by announcing buybacks.

Whichever way you interpreted the buyback announcement, it's pretty clear that Huntington thinks its future is bright. Announcing the increased buyback, CEO Chris Kastner explained that he has "confidence in HII's free cash flow generation," implying both that Huntington will have the cash needed to fully fund its buyback plans and that the stock is performing well enough that buying back all these shares is a good idea.

Is he right?

Is Huntington Ingalls stock a buy?

From a big-picture perspective, he should be right.

After all, continued tensions in the South China Sea (China versus the U.S., versus Taiwan, and versus Japan, Vietnam, Australia, and others), combined with military conflicts in the Black Sea region (Russia versus Ukraine), and now in the Red Sea (the Houthis versus... well, everybody), all highlight a growing need for more U.S. warships to provide presence that will discourage military adventurism. Although tight defense budgets remain a headwind, as one of only two U.S. defense contractors specializing in the construction of warships, Huntington Ingalls is still well positioned to benefit from these trends.

And indeed, Huntington Ingalls is already benefiting. After declining year over year through the first half of 2023, revenue resumed growing in Q3, then took off in a big way in Q4. Operating profit margin, just a weak 3.7% one year ago, expanded to 9.8% in Q4, a steady improvement that lifted full-year margin for the year to 6.8%. And free cash flow for the year surged 40% to $692 million.

According to Kastner, Huntington Ingalls is now "entering a period of accelerated growth and increased free cash flow generation" that should see the company produce as much as $3.6 billion in positive free cash flow over the next five years. That's nearly enough cash to fully fund the company's planned buybacks. And Wall Street analysts polled by S&P Global Market Intelligence estimate that Huntington Ingalls actually will generate closer to $3.8 billion -- exactly enough money to buy back all the shares the company has promised to buy, and reduce the share count by one-third.

At a stock valuation of just 15.5 times trailing earnings, 15.2 times trailing free cash flow, and just 0.9 times trailing sales, I agree with management on this one: Almost alone among America's major defense contractors, Huntington Ingalls stock is cheap enough to buy.