Credit Suisse: Trump Budget, Guidance Are Tailwinds For Huntington Ingalls

The release of President Donald Trump's 2019 budget request and Huntington Ingalls Industries Inc HII management's more bullish-than-usual commentary have increased Credit Suisse's optimism for the military shipbuilder's stock. 

The Analyst

Credit Suisse analyst Robert Spingarn upgraded shares of Huntington Ingalls from Neutral to Outperform and increased the price target from $335 to $241, representing 31-percent upside from current levels.

The Thesis

Huntington Ingalls shares are well-positioned for investors, even after the 30-percent run-up seen since Jan. 1, 2017, Spingarn said in a Friday note. Citing top-line growth, continued solid margins and the latest pension contribution and recovery guidance, the analyst said he expects substantial EPS growth in coming years and, beginning in 2019, free cash flow.

Pension income appears largely sustainable in light of 2018 and 2019 guidance and similar trends seen throughout the industry, Spingarn said.

"Further, while the valuation debate will rage on, the fact remains that the market has generally paid elevated multiples on GAAP earnings, at least for the last several years," Spingarn said. 

The analyst modeled fiscal 2019 adjusted EPS of $18.83, up 47 percent from Credit Suisse's previous estimate. The free cash flow estimate for 2019 was revised by 34 percent. Spingarn also increased the 2018 adjusted EPS estimate from $12.43 to $18.08.

Modeling lower 2020 pension income, Credit Suisse projects 2020 EPS of $16.67.

The Price Action

Huntington Ingalls shares were up about 24 percent over the past year until Thursday.

At the time of writing, the shares were advancing an incremental 3.79 percent to $265.07.

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Photo courtesy of Huntington Ingalls Industries.