Intrinsic value of Huntington Ingalls Industries - HII

Previous Close

$226.25

  Intrinsic Value

$307.34

stock screener

  Rating & Target

buy

+36%

Previous close

$226.25

 
Intrinsic value

$307.34

 
Up/down potential

+36%

 
Rating

buy

We calculate the intrinsic value of HII stock by summing up the current values of future distributable cash flows generated by the company and dividing the sum by the number of outstanding shares. As such, the intrinsic value calculation depends entirely on projections. The more accurate your projections of the company's performance are - the more reliable is the intrinsic value calculation result. Please make sure to check the stock valuation input data below and adjust it if necessary. The quality of the output (intrinsic valuation result) is only as good as the quality of the input. See also DISCLAIMERS.

STOCK VALUATION INPUT DATA

Revenue (in 0001), $M
Initial revenue growth rate, %
Terminal revenue growth rate, %
Revenue decline factor
Initial discount rate, %
Discount rate multiplier
Variable cost ratio, %
Fixed operating expenses, $M
Interest rate on debt, %
Effective corporate tax rate, %
Production assets / Revenue, %
Life of production assets, yrs
Working capital / Revenue, %
Revenue / Adjusted assets
Adjusted equity ratio
Cash flow adjustment, % of Revenue
Book value of equity, $M
Shares outstanding, mln
Market capitalization, $bln 9.8

 

FINANCIAL STATEMENTS FORECAST and PRESENT VALUE CALCULATION

Fiscal year
   2
   3
   4
   5
   6
   7
   8
   9
   10
   11
   12
   13
   14
   15
   16
   17
   18
   19
   20
   21
   22
   23
   24
   25
   26
   27
   28
   29
   30
   31

INCOME STATEMENT

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Revenue growth rate, %
  8.70
  8.33
  8.00
  7.70
  7.43
  7.18
  6.97
  6.77
  6.59
  6.43
  6.29
  6.16
  6.04
  5.94
  5.85
  5.76
  5.69
  5.62
  5.56
  5.50
  5.45
  5.40
  5.36
  5.33
  5.30
  5.27
  5.24
  5.22
  5.19
  5.17
Revenue, $m
  8,088
  8,762
  9,463
  10,191
  10,948
  11,735
  12,552
  13,402
  14,286
  15,205
  16,161
  17,157
  18,194
  19,275
  20,402
  21,577
  22,804
  24,085
  25,423
  26,821
  28,283
  29,811
  31,410
  33,084
  34,836
  36,670
  38,591
  40,604
  42,713
  44,923
Variable operating expenses, $m
  7,111
  7,689
  8,290
  8,915
  9,564
  10,239
  10,940
  11,669
  12,427
  13,215
  13,863
  14,717
  15,607
  16,534
  17,501
  18,509
  19,562
  20,660
  21,808
  23,007
  24,261
  25,573
  26,944
  28,380
  29,883
  31,456
  33,104
  34,831
  36,640
  38,536
Fixed operating expenses, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total operating expenses, $m
  7,111
  7,689
  8,290
  8,915
  9,564
  10,239
  10,940
  11,669
  12,427
  13,215
  13,863
  14,717
  15,607
  16,534
  17,501
  18,509
  19,562
  20,660
  21,808
  23,007
  24,261
  25,573
  26,944
  28,380
  29,883
  31,456
  33,104
  34,831
  36,640
  38,536
Operating income, $m
  978
  1,073
  1,173
  1,277
  1,384
  1,496
  1,612
  1,733
  1,859
  1,989
  2,298
  2,439
  2,587
  2,741
  2,901
  3,068
  3,242
  3,424
  3,615
  3,813
  4,021
  4,239
  4,466
  4,704
  4,953
  5,214
  5,487
  5,773
  6,073
  6,387
EBITDA, $m
  1,322
  1,432
  1,547
  1,666
  1,790
  1,918
  2,052
  2,191
  2,335
  2,485
  2,642
  2,804
  2,974
  3,151
  3,335
  3,527
  3,727
  3,937
  4,156
  4,384
  4,623
  4,873
  5,134
  5,408
  5,694
  5,994
  6,308
  6,637
  6,982
  7,343
Interest expense (income), $m
  71
  95
  124
  155
  187
  221
  256
  292
  329
  368
  409
  451
  495
  541
  588
  638
  690
  744
  800
  859
  920
  984
  1,051
  1,122
  1,195
  1,272
  1,352
  1,437
  1,525
  1,617
  1,714
Earnings before tax, $m
  883
  949
  1,018
  1,089
  1,163
  1,240
  1,320
  1,404
  1,490
  1,580
  1,847
  1,944
  2,046
  2,152
  2,263
  2,378
  2,499
  2,624
  2,756
  2,893
  3,037
  3,187
  3,344
  3,509
  3,681
  3,861
  4,050
  4,248
  4,456
  4,673
Tax expense, $m
  238
  256
  275
  294
  314
  335
  357
  379
  402
  427
  499
  525
  552
  581
  611
  642
  675
  709
  744
  781
  820
  861
  903
  947
  994
  1,043
  1,094
  1,147
  1,203
  1,262
Net income, $m
  645
  693
  743
  795
  849
  905
  964
  1,025
  1,088
  1,154
  1,348
  1,419
  1,494
  1,571
  1,652
  1,736
  1,824
  1,916
  2,012
  2,112
  2,217
  2,327
  2,441
  2,561
  2,687
  2,819
  2,957
  3,101
  3,253
  3,411

BALANCE SHEET

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Cash and short-term investments, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Total assets, $m
  6,931
  7,508
  8,109
  8,733
  9,381
  10,056
  10,756
  11,484
  12,241
  13,029
  13,848
  14,702
  15,590
  16,516
  17,482
  18,489
  19,541
  20,638
  21,785
  22,983
  24,235
  25,545
  26,916
  28,350
  29,851
  31,423
  33,069
  34,793
  36,600
  38,494
Adjusted assets (=assets-cash), $m
  6,931
  7,508
  8,109
  8,733
  9,381
  10,056
  10,756
  11,484
  12,241
  13,029
  13,848
  14,702
  15,590
  16,516
  17,482
  18,489
  19,541
  20,638
  21,785
  22,983
  24,235
  25,545
  26,916
  28,350
  29,851
  31,423
  33,069
  34,793
  36,600
  38,494
Revenue / Adjusted assets
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
  1.167
Average production assets, $m
  3,235
  3,505
  3,785
  4,076
  4,379
  4,694
  5,021
  5,361
  5,714
  6,082
  6,464
  6,863
  7,278
  7,710
  8,161
  8,631
  9,122
  9,634
  10,169
  10,728
  11,313
  11,924
  12,564
  13,234
  13,934
  14,668
  15,437
  16,242
  17,085
  17,969
Working capital, $m
  113
  123
  132
  143
  153
  164
  176
  188
  200
  213
  226
  240
  255
  270
  286
  302
  319
  337
  356
  375
  396
  417
  440
  463
  488
  513
  540
  568
  598
  629
Total debt, $m
  1,681
  2,099
  2,534
  2,986
  3,455
  3,943
  4,450
  4,978
  5,526
  6,096
  6,689
  7,307
  7,950
  8,621
  9,320
  10,049
  10,810
  11,605
  12,435
  13,303
  14,209
  15,158
  16,150
  17,188
  18,275
  19,413
  20,605
  21,853
  23,162
  24,533
Total liabilities, $m
  5,018
  5,436
  5,871
  6,323
  6,792
  7,280
  7,787
  8,315
  8,863
  9,433
  10,026
  10,644
  11,287
  11,958
  12,657
  13,386
  14,147
  14,942
  15,772
  16,640
  17,546
  18,495
  19,487
  20,525
  21,612
  22,750
  23,942
  25,190
  26,499
  27,870
Total equity, $m
  1,913
  2,072
  2,238
  2,410
  2,589
  2,775
  2,969
  3,170
  3,379
  3,596
  3,822
  4,058
  4,303
  4,559
  4,825
  5,103
  5,393
  5,696
  6,013
  6,343
  6,689
  7,050
  7,429
  7,824
  8,239
  8,673
  9,127
  9,603
  10,102
  10,624
Total liabilities and equity, $m
  6,931
  7,508
  8,109
  8,733
  9,381
  10,055
  10,756
  11,485
  12,242
  13,029
  13,848
  14,702
  15,590
  16,517
  17,482
  18,489
  19,540
  20,638
  21,785
  22,983
  24,235
  25,545
  26,916
  28,349
  29,851
  31,423
  33,069
  34,793
  36,601
  38,494
Debt-to-equity ratio
  0.880
  1.010
  1.130
  1.240
  1.330
  1.420
  1.500
  1.570
  1.640
  1.700
  1.750
  1.800
  1.850
  1.890
  1.930
  1.970
  2.000
  2.040
  2.070
  2.100
  2.120
  2.150
  2.170
  2.200
  2.220
  2.240
  2.260
  2.280
  2.290
  2.310
Adjusted equity ratio
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276
  0.276

CASH FLOW

 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
Net income, $m
  645
  693
  743
  795
  849
  905
  964
  1,025
  1,088
  1,154
  1,348
  1,419
  1,494
  1,571
  1,652
  1,736
  1,824
  1,916
  2,012
  2,112
  2,217
  2,327
  2,441
  2,561
  2,687
  2,819
  2,957
  3,101
  3,253
  3,411
Depreciation, amort., depletion, $m
  345
  359
  374
  389
  405
  422
  440
  458
  476
  496
  344
  365
  387
  410
  434
  459
  485
  512
  541
  571
  602
  634
  668
  704
  741
  780
  821
  864
  909
  956
Funds from operations, $m
  989
  1,052
  1,117
  1,184
  1,255
  1,328
  1,403
  1,482
  1,564
  1,650
  1,692
  1,784
  1,881
  1,981
  2,086
  2,195
  2,309
  2,428
  2,553
  2,683
  2,819
  2,961
  3,110
  3,265
  3,428
  3,599
  3,778
  3,965
  4,162
  4,367
Change in working capital, $m
  9
  9
  10
  10
  11
  11
  11
  12
  12
  13
  13
  14
  15
  15
  16
  16
  17
  18
  19
  20
  20
  21
  22
  23
  25
  26
  27
  28
  30
  31
Cash from operations, $m
  980
  1,042
  1,107
  1,174
  1,244
  1,317
  1,392
  1,470
  1,552
  1,637
  1,679
  1,770
  1,866
  1,966
  2,070
  2,179
  2,292
  2,410
  2,534
  2,663
  2,798
  2,939
  3,087
  3,242
  3,404
  3,573
  3,751
  3,937
  4,132
  4,336
Maintenance CAPEX, $m
  -158
  -172
  -186
  -201
  -217
  -233
  -250
  -267
  -285
  -304
  -324
  -344
  -365
  -387
  -410
  -434
  -459
  -485
  -512
  -541
  -571
  -602
  -634
  -668
  -704
  -741
  -780
  -821
  -864
  -909
New CAPEX, $m
  -258
  -270
  -280
  -291
  -303
  -315
  -327
  -340
  -353
  -368
  -383
  -398
  -415
  -432
  -451
  -470
  -491
  -512
  -535
  -559
  -585
  -611
  -640
  -669
  -701
  -734
  -768
  -805
  -844
  -884
Cash from investing activities, $m
  -416
  -442
  -466
  -492
  -520
  -548
  -577
  -607
  -638
  -672
  -707
  -742
  -780
  -819
  -861
  -904
  -950
  -997
  -1,047
  -1,100
  -1,156
  -1,213
  -1,274
  -1,337
  -1,405
  -1,475
  -1,548
  -1,626
  -1,708
  -1,793
Free cash flow, $m
  564
  601
  640
  681
  724
  769
  815
  863
  913
  965
  973
  1,028
  1,086
  1,147
  1,209
  1,274
  1,342
  1,413
  1,486
  1,563
  1,643
  1,726
  1,813
  1,904
  1,999
  2,099
  2,202
  2,311
  2,425
  2,544
Issuance/(repayment) of debt, $m
  402
  418
  435
  452
  470
  488
  507
  527
  548
  570
  593
  618
  643
  671
  699
  729
  761
  795
  830
  867
  907
  948
  992
  1,038
  1,087
  1,138
  1,192
  1,249
  1,308
  1,371
Issuance/(repurchase) of shares, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash from financing (excl. dividends), $m  
  402
  418
  435
  452
  470
  488
  507
  527
  548
  570
  593
  618
  643
  671
  699
  729
  761
  795
  830
  867
  907
  948
  992
  1,038
  1,087
  1,138
  1,192
  1,249
  1,308
  1,371
Total cash flow (excl. dividends), $m
  966
  1,019
  1,075
  1,133
  1,194
  1,257
  1,323
  1,391
  1,462
  1,535
  1,566
  1,646
  1,730
  1,817
  1,908
  2,004
  2,103
  2,207
  2,316
  2,430
  2,550
  2,675
  2,805
  2,942
  3,086
  3,237
  3,394
  3,560
  3,733
  3,915
Retained Cash Flow (-), $m
  -155
  -159
  -166
  -172
  -179
  -186
  -193
  -201
  -209
  -217
  -226
  -235
  -245
  -256
  -267
  -278
  -290
  -303
  -316
  -331
  -346
  -362
  -378
  -396
  -414
  -434
  -454
  -476
  -499
  -523
Prev. year cash balance distribution, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash flow adjustment, $m
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
  0
Cash available for distribution, $m
  811
  859
  909
  961
  1,015
  1,071
  1,129
  1,190
  1,253
  1,318
  1,340
  1,411
  1,485
  1,562
  1,642
  1,726
  1,813
  1,905
  2,000
  2,100
  2,204
  2,313
  2,427
  2,547
  2,672
  2,803
  2,940
  3,084
  3,234
  3,392
Discount rate, %
  4.30
  4.52
  4.74
  4.98
  5.23
  5.49
  5.76
  6.05
  6.35
  6.67
  7.00
  7.35
  7.72
  8.11
  8.51
  8.94
  9.39
  9.86
  10.35
  10.87
  11.41
  11.98
  12.58
  13.21
  13.87
  14.56
  15.29
  16.05
  16.86
  17.70
PV of cash for distribution, $m
  777
  787
  791
  791
  787
  777
  763
  744
  720
  691
  636
  602
  564
  524
  482
  439
  395
  351
  308
  267
  228
  192
  159
  130
  104
  82
  63
  48
  35
  26
Current shareholders' claim on cash, %
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0
  100.0

Huntington Ingalls Industries, Inc. is a military shipbuilding company and a provider of professional services to partners in government and industry. The Company's business consists of the design, construction, repair and maintenance of nuclear-powered ships and non-nuclear ships for the United States Navy and coastal defense surface ships for the United States Coast Guard, as well as the refueling and overhaul and inactivation of nuclear-powered ships for the United States Navy. It operates through three segments: Ingalls Shipbuilding (Ingalls), Newport News Shipbuilding (Newport News) and Technical Solutions. Its Ingalls segment includes its non-nuclear ship design, construction, repair and maintenance businesses. Its Newport News includes all of its nuclear ship design, construction, overhaul, refueling, and repair and maintenance businesses. Its Technical Solutions segment provides a range of professional services to the governmental, energy, and oil and gas markets.

FINANCIAL RATIOS  of  Huntington Ingalls Industries (HII)

Valuation Ratios
P/E Ratio 18.2
Price to Sales 1.5
Price to Book 6.3
Price to Tangible Book
Price to Cash Flow 12.7
Price to Free Cash Flow 19.5
Growth Rates
Sales Growth Rate 0.7%
Sales - 3 Yr. Growth Rate %
EPS Growth Rate %
EPS - 3 Yr. Growth Rate %
Capital Spending Gr. Rate 51.6%
Cap. Spend. - 3 Yr. Gr. Rate 15.4%
Financial Strength
Quick Ratio NaN
Current Ratio 0
LT Debt to Equity 77.3%
Total Debt to Equity 77.3%
Interest Coverage 12
Management Effectiveness
Return On Assets 10.1%
Ret/ On Assets - 3 Yr. Avg. 8.1%
Return On Total Capital 20.1%
Ret/ On T. Cap. - 3 Yr. Avg. 14.9%
Return On Equity 36.5%
Return On Equity - 3 Yr. Avg. 29.4%
Asset Turnover 1.1
Profitability Ratios
Gross Margin 20.7%
Gross Margin - 3 Yr. Avg. 20.8%
EBITDA Margin 14.7%
EBITDA Margin - 3 Yr. Avg. 13.1%
Operating Margin 12.1%
Oper. Margin - 3 Yr. Avg. 10.8%
Pre-Tax Margin 11.1%
Pre-Tax Margin - 3 Yr. Avg. 9.1%
Net Profit Margin 8.1%
Net Profit Margin - 3 Yr. Avg. 6.2%
Effective Tax Rate 26.9%
Eff/ Tax Rate - 3 Yr. Avg. 32.1%
Payout Ratio 17.1%

HII stock valuation input parameters

Revenue. Company's revenue (or sales) is always the starting point of any cash flow forecast. In the HII stock intrinsic value calculation we used $7441 million for the last fiscal year's total revenue generated by Huntington Ingalls Industries. The default revenue input number comes from 0001 income statement of Huntington Ingalls Industries. You may change it if you feel that it should be adjusted for some unusual circumstances that are not expected to be repeated in the future or if you already know (from interim financial statements, for example) that this year's revenue is going to be quite different.

Revenue growth rate. Forecasted future revenue growth rate is the most important input parameter for the intrinsic value calculation. Unlike other input parameters that are reasonably expected to be in line with their historic averages or their historic trends, the revenue growth rate by and large is a wild card: nobody really knows what the company's revenue will be in the future. Of course, the level of unpredictability is different for different industries (utility companies being the most predictable and, thus, less risky).
    We use three input parameters to forecast the revenue growth rate in our HII stock valuation model: a) initial revenue growth rate of 8.7% whose default value is the revenue growth rate in the most recent quarter compared to the quarterly revenue a year ago; b) terminal revenue growth rate of 5% whose default value is chosen to be close to the average nominal (i.e. not adjusted for inflation) GDP growth rate; and c) revenue decline factor of 0.9, which stipulates that revenue growth rate in each forecasted year will be equal to the difference of the revenue growth rate in the preceding year and the terminal revenue growth rate multiplied by this revenue decline factor (with the passage of time the revenue growth rate will be approaching the terminal revenue growth rate, but not quite reaching it - though the difference could be infinitesimally small).
    At the revenue decline factor of 1, the future revenue growth rate is forecasted to be constant and equal to the initial revenue growth rate. The smaller the revenue decline factor, the faster the revenue growth rate will approach the terminal revenue growth.

Discount rate. The discount rate is used for determining the present value of future cash flows: future cash flows are "discounted" as at normal conditions (that translate into positive expected return on investment) one dollar today is worth more than the same dollar in the future. Unlike all other valuation models, we use variable discount rate, i.e. it increases for each consecutive year. This is done to account for higher risk of cash flows coming in further in the future.
    The initial discount rate of 4.3%, whose default value for HII is calculated based on our internal credit rating of Huntington Ingalls Industries, is applied to the cash flow expected to be received a year from now (well, actually, to be precise, in the financial year following the base year - the last year for which we have financial statements). For each consecutive year the discount rate is multiplied by the discount rate multiplier of 1.05, e.i. each year it increases by 5%. Feel free to change this number to correspond to your level of risk assessment of Huntington Ingalls Industries.
    By the way, it is easy to set the discount rate to be constant (this would make comparison with other valuation models easier): just set the discount rate multiplier equal to 1 and chose the magnitude of the initial discount rate to your liking.

Variable cost ratio is the ratio of variable costs (i.e. costs that fluctuate with fluctuation of the volume of production) to the revenue expressed as a percentage. In the calculation of intrinsic value of HII stock the variable cost ratio is equal to 88.1%.

Fixed operating expenses is just that - expenses that are not dependant on the volume of production. They are set to $0 million in the base year in the intrinsic value calculation for HII stock. These expenses increase with the level of inflation in subsequent years.

Interest rate on debt is the average all-in rate of interest paid by the company on its debt. It is set at 7.4% for Huntington Ingalls Industries.

Corporate tax rate of 27% is the nominal tax rate for Huntington Ingalls Industries. In reality, companies find ways to pay much less taxes than that or not to pay them at all.

Cash flow adjustment could be used for any adjustment the investor deems necessary. Most commonly we use this field to account for stock options-related effects in excess of what is reported on the company's income statement. The cash flow adjustment is expressed as a percentage of the revenue, and in the current valuation of the HII stock is equal to 0%.

Production assets are the company's assets used for manufacturing products or provision of services. In the valuation model input table they are expressed as a percentage of revenue and for HII are equal to 40%.

Life of production assets of 18.8 years is the average useful life of capital assets used in Huntington Ingalls Industries operations. It is used to calculate yearly capital expenditures needed to keep these assets in good order - we call it the maintenance CAPEX.

Working capital is the difference between the company's current assets and liabilities. In the model we use the ratio of working capital to revenue, which for HII is equal to 1.4%. A negative number means that the company is apt at using financial resources of its suppliers and customers; a large positive number, on the other hand, means that it either provides in-kind financing to others or is not good at managing its inventories.

Book value of equity - $1758 million for Huntington Ingalls Industries - is used in calculation of the "floor" for intrinsic valuation based on the discounted cash flow (DCF) method. Even if the prospects are very bad for a company, its assets could always be sold now for their current fair market value.

Shares outstanding of 43.318 million for Huntington Ingalls Industries is needed to calculate the intrinsic value of one share.

Market capitalization is used here only for reference purposes and as a quick check that the share price and the number of shares outstanding numbers are correct - something especially to be cognizant about at stock splits. So, the market capitalization of Huntington Ingalls Industries at the current share price and the inputted number of shares is $9.8 billion.

RELATED COMPANIES Price Int.Val. Rating
GD General Dynami 191.85 416.37  str.buy
AVAV AeroVironment 92.69 18.06  str.sell
HON Honeywell Inte 156.20 242.19  str.buy

COMPANY NEWS

▶ Here Are the Big Winners in the 2019 Defense Budget   [Sep-22-18 08:33AM  Motley Fool]

CONTACT US       ASSET ALLOCATION

About X-FIN       Site news       Privacy policy       Terms of use       FAQ

Copyright © X-FIN.com 2005-2018. All rigths reserved.