Markets

Huntington Ingalls (HII) Q4 Earnings: What's in the Cards?

Huntington Ingalls Industries, Inc.HII , the largest U.S. military shipbuilder, is set to release fourth-quarter and full-year 2016 results on Feb 16, before the opening bell.

Last quarter, the company posted a negative earnings surprise of 5.02%. However, the company surpassed the Zacks Consensus Estimate in two of the trailing four quarters, the average surprise being 7.21%.

Let's see how things are shaping up at the company prior to this announcement.

Factors at Play

Apart from being the prime industrial employer in Virginia, Huntington is the sole designer and manufacturer of nuclear powered aircraft carriers in the U.S. Over 70% of the active U.S. Navy fleet consists of Huntington Ingalls ships.

In terms of notable contract wins, the fourth quarter has been a significant one for Huntington. At the very onset of the quarter, the company secured a contract worth $400 million for conducting repair work on the U.S. Navy's nuclear-powered submarines and special mission submersibles. Next, the company clinched a modification contract worth $120 million from the U.S. Navy to provide additional long lead-time material for the Landing Helicopter Assault (LHA) Replacement (LHA(R)) Flight 1 Amphibious Assault Ship (LHA 8).

Around the end of the quarter, the company secured another major deal worth $1.46 billion, which was a modification contract for the procurement of USS Fort Lauderdale (LPD 28) - the 12th San Antonio-class amphibious transport dock ship of the U.S. Navy. All these valuable contracts are expected to boost Huntington's revenues in the fourth quarter as well as beyond.

With respect to inorganic growth, the company completed its acquisition of Camber Corporation, a government services company based in Huntsville, AL, for $380 million during the fourth quarter. The transaction is expected to boost Huntington Ingalls' bottom line and cash flow in the first full year. The newly formed business segment of Huntington will improve strategic and operational alignment among the services businesses, develop opportunities for growth and enhance performance transparency, courtesy of the buyout.

On the flip side, management expects to witness consistent volume and margin pressure in Huntington's Newport News division in the fourth quarter and beyond as the company focuses on delivering aircraft. Also, capital expenditure is expected to be 4-4.5% of revenues in 2016, up from 2.8% observed in the first nine months of 2016.

The Zacks Consensus Estimate for fourth-quarter earnings is pegged at $2.48, reflecting an increase of 10.71% year over year. The Zacks Consensus Estimate for revenues is at $1.85 billion, implying a 3.02% decline.

Earnings Whispers

Our proven model does not conclusively show that Huntington is likely to beat earnings this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. This is not the case here, as you will see below.

Zacks ESP: Huntington has an Earnings ESP of 0.00%. This is because both the Most Accurate estimate and the Zacks Consensus Estimate are pegged at $2.48. You can uncover the best stocks to buy or sell before they're reported with our Earnings ESP Filter .

Zacks Rank: Huntington carries a Zacks Rank #2 (Buy) which increases the predictive power of ESP. However, the company's 0.00% ESP makes surprise prediction difficult.

Meanwhile, we caution against stocks with a Zacks Rank #4 or 5 (Sell-rated stocks) going into the earnings announcement, especially when the company is seeing negative estimate revisions.

Huntington Ingalls Industries, Inc. Price and EPS Surprise

Huntington Ingalls Industries, Inc. Price and EPS Surprise | Huntington Ingalls Industries, Inc. Quote

Stocks that Warrant a Look

Here are a few defense stocks, which have the right combination of elements to post an earnings beat this quarter:

Curtiss-Wright Corporation CW has an Earnings ESP of +1.35% and a Zacks Rank #3. The company is expected to release its quarterly figures on Feb 15.

Kratos Defense & Security Solutions, Inc. KTOS has an Earnings ESP of +66.67% and a Zacks Rank #3. It is expected to report earnings on Mar 9. You can see the complete list of today's Zacks #1 Rank stocks here .

Orbital ATK, Inc. OA has an Earnings ESP of +0.69% and a Zacks Rank #3. It is expected to report earnings on Mar 6.

The Best Place to Start Your Stock Search

Today, you are invited to download the full list of 220 Zacks Rank #1 """"Strong Buy"""" stocks - absolutely free of charge. Since 1988, Zacks Rank #1 stocks have nearly tripled the market, with average gains of +26% per year. Plus, you can access the list of portfolio-killing Zacks Rank #5 """"Strong Sells"""" and other private research. See these stocks free >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

Kratos Defense & Security Solutions, Inc. (KTOS): Free Stock Analysis Report

Curtiss-Wright Corporation (CW): Free Stock Analysis Report

Huntington Ingalls Industries, Inc. (HII): Free Stock Analysis Report

Orbital ATK, Inc. (OA): Free Stock Analysis Report

To read this article on Zacks.com click here.

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

KTOS CW HII

Other Topics

Earnings Stocks

Latest Markets Videos

    Zacks

    Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

    Learn More