Huntington Ingalls (HII 0.82%) 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%.
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.
