Market Mad House

In individuals, insanity is rare; but in groups, parties, nations and epochs, it is the rule. Friedrich Nietzsche


Is Huntington Ingalls (HII) Making Money?

America’s largest naval shipbuilder Huntington Ingalls (HII) could profit from a return to normalcy in Washington DC.

Huntington Ingalls (NYSE: HII) builds warships including nuclear submarines, aircraft carriers, and Coast Guard cutters. Today, normalcy in Washington DC means Democrats and Republicans working together to raise the defense budget and buy more weapons.

Hence, defense contractors such as Huntington Ingalls profit from normalcy. Normalcy could return because President-Elect Joe Biden (D-Delaware) is a conservative Democrat who favors high defense spending.

Normalcy is good for Huntington Ingalls

For instance, there is speculation Biden could appoint Michèle Flournoy U.S. Secretary of Defense. Flournoy is a notorious war hawk who favors high military spending. Predictably, antiwar media such as Mother Jones is already attacking Flournoy’s possible appointment.

Notably, Huntington Ingalls’ (HII) stock price rose from $142.97 on 29 October 2020 before the presidential election to $165.11 on 23 November 2020 and fell to $159.52 on 30 November 2020. Conversely, Mr. Market paid $255.85 for HII on 2 January 2020.

One reason Biden could sign off on naval expansion is that shipbuilding is one of the few jobs programs Republicans will support. Huntington Ingalls claims to employ over 42,000 people. In addition, Huntington Ingalls claims to be the largest industrial employer in two states, Virginia and Mississippi.

I think Huntington Ingalls’ share price shows Mr. Market thinks normalcy will soon return in Washington DC. To explain, the Huntington Ingalls investors believe President Biden will approve an expansion of the Navy and Congress will finance that naval expansion.

Mississippi is an important Republican state while Virginia is becoming a Democratic stronghold again. Thus, there will be powerful pressure on Biden, a former US Senator, to help his old friends in the Senate by ordering more warships.

What is Huntington Ingalls?

Huntington Ingalls (HII) is the shipbuilder Northrop Grumman (NOC) spun off in 2011.

Huntington Ingalls operates the US Navy’s oldest and most important shipyards at Newport News, Virginia. Huntington Ingalls claims to have built over 70% of the US Navy’s warships.

Huntington Ingalls is the sole builder of aircraft carriers for the US Navy and one of two companies that build nuclear submarines. Recent Huntington Ingalls projects include Aegis Guided Missile Destroyers, the flagship of the US Coast Guard, and amphibious assault ships for the US Navy and Marine Corps.

Does America need Aircraft Carriers?

Among other things, Huntington Ingalls has a contract to build the next US Navy Aircraft carrier, the John F. Kennedy. However, I think aircraft carriers could have little value in today’s world.

To explain, I think aircraft carriers will be a giant floating target for drones and missiles in the next war. The carriers will either stay tied up in the harbor, or get sunk in the opening days of the war, similar to battleships in World War II.

Notably, some defense analysts think aircraft carriers cannot operate within 900 nautical miles of the Chinese coast because of China’s carrier-killer missiles. Thus, the argument that America will need more aircraft carriers for a second Cold War against China is debatable.

On the other hand, America could need more carriers because hawks such as President Biden will want to project American power worldwide. However, Biden also wants to avoid more ground wars. Hence, America will need more floating bases for drones and warplane, so aircraft American will need more carriers.

Even if aircraft carriers are useless, Huntington Ingalls builds warship that could fight the next war. Nuclear submarines, for example, which could become more important than ever, – if an enemy sinks all the carriers. Notably, Huntington Ingalls just delivered the latest Virginia class nuclear submarine, the USS Montana to the Fleet.

Thus, Huntington Ingalls could profit from a Second Cold War. However, the Chinese will have to agree to play in the Second Cold War. Personally, I think the Chinese are not the Russians. To explain, I think the Chinese will ignore America and concentrate on making money, which disappoint America’s Warhawks.

How Much Money Does Huntington Ingalls Make?

Huntington Ingalls (HII) is making some money. It made a quarterly gross profit of $436 million on revenues of $2.134 billion on 30 September 2020.

Moreover, Huntington Ingalls reported a quarterly operating income of $222 million on 30 September 2020. The quarterly operating income grew from $57 million on 30 June 2020. In addition, the quarterly gross profit grew from $264 million on 30 June 2020 and the quarterly revenues grew from $2.027 billion on the same day.

Stockrow estimates Huntington Ingalls revenues grew at a rate of 4.28% in the quarter ending on 30 September 2020. Thus, Huntington Ingalls reported revenue growth in a pandemic.

Furthermore, Huntington Ingalls reported a quarterly operating cash flow of $222 million on 30 September 2020. The quarterly operating cash flow rose from $201 million on 30 June 2020.

Consequently, Huntington Ingalls reported a quarterly ending cash flow of $113 million on 30 September 2020. Unfortunately, I think the company borrowed much of that money. To explain, Huntington Ingalls reported a financing cash flow of $477 million on 30 June 2020. The financing cash flow fell to -$42 million on 30 September 2020.

What Value Does Huntington Ingalls have?

Huntington Ingalls (HII) had $744 million in cash and short-term investments and total assets of $8.445 billion on 30 June 2020. Thus Huntington Ingalls has some value.

The value case for Huntington Ingalls is easy to make. Huntington Ingalls makes money, and it has a customer; the Pentagon, that cannot run out of money. Moreover, America’s current political leadership seems dedicated to maintaining a powerful military. Plus, the Pentagon is full of experts at manufacturing new threats to justify the procurement of more weapons.

Conversely, I do not think there is any popular support for an enormous military among the American public. However, the America public has no interest in military matters which allows Congress to spend enormous amounts of money on weapons while attracting no attention.

Huntington Ingalls is a Good Dividend Stock

Furthermore, Huntington Ingalls (HII) paid a good quarterly dividend of $1.14 on 25 November 2020. The quarterly dividend rose from $1.03 on 27 August 2020. Thus, HII’s dividends grew by 11₵ in a month.

In the final analysis, I consider Huntington Ingalls a good moneymaking stock that pays a nice dividend. Hence, you will make money from Huntington Ingalls.

There are serious moral problems with Huntington Ingalls because it is a weapons manufacturer. It builds nuclear submarines, for example. If you can live with the military industrial complex Huntington Ingalls is a good stock. Those who dislike weapons and war need to avoid HII.