Huntington Ingalls (HII) Issues Notes to Execute Acquisition


Huntington Ingalls Industries, Inc. (HII Quick QuoteHII ) completes issuing 0.670% senior notes worth $400 million due 2023 and $600 million of 2.043% senior notes due 2028. The offering was announced on Aug 9.

Net proceeds from this offering along with borrowings under the company’s term-loan credit facility will be utilized to fund the previously-announced Alion Science and Technology acquisition. The acquisition worth $1.65 billion of cash is expected to get completed in the second half of 2021. The deal will cost Huntington Ingalls $25 million of one-time transaction and financing-related expenses in 2021.

Motive Behind the Acquisition

Alion is poised for consistent growth with more than $3 billion in backlog and above $5 billion in estimated contract value besides a robust pipeline opportunity. Also, the U.S. Navy represents about one third of Alion’s current annual revenues while its customer base includes other intelligence communities. This will likely aid Huntington Ingalls’ operating results, post integration of Alion in its business.

Following the closure, Huntington Ingalls’ Technical Solutions business segment is projected to witness a CAGR of 7-9% in pro forma revenues during the 2021-2024 time period. The transaction will also raise Huntington Ingalls’ free cash flow outlook for the 2022-2024 forecast period by $200 million. The deal further creates substantial revenue and value addition opportunities worth $2.6 billion for Huntington Ingalls over the long term.

Financial Position

Huntington Ingalls’ cash and cash equivalents at the end of second-quarter 2021 were $348 million. The company’s long-term debt as of Jun 30, 2021 was $1,689 million. Although the long-term debt level lies much above the cash reserve, the company holds no current debt. This reflects its favorable solvency position, at least over the short term.

The company’s current ratio of 1.09 as of Jun 30, 2021 indicates that it has sufficient funds to meet its short-term obligations. The ratio also improved sequentially. Huntington Ingalls’ debt-to-capital ratio of 0.45 declined sequentially. Also, its interest coverage ratio pegged at 8.7 as of Jun 30, 2021 improved sequentially from 7.4. Such improving financial ratios make us optimistic about the company’s ability to meet its debt obligations in the near future. This must have boosted investor confidence as well.

Price Performance & Zacks Rank

In the past six months, shares of Huntington Ingalls have gained 15.3% against the industry’s 4.1% fall.

Huntington Ingalls currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Six Months’ Price Performance

Zacks Investment Research
Image Source: Zacks Investment Research

Stocks to Consider

A few better-ranked players from the sector are Textron Inc. (TXT Quick QuoteTXT ) , VirTra, Inc. (VTSI Quick QuoteVTSI ) and Transdigm Group Incorporated (TDG Quick QuoteTDG ) . While Textron flaunts a Zacks Rank #1, the other two holding a Zacks Rank#2 (Buy) at present.

Textron has a long-term earnings growth rate of 28.25%. It delivered an earnings surprise of 37.4%, on average, in the last four quarters.

VirTra has a long-term earnings growth rate of 40%. It delivered an earnings surprise of 172.9%, on average, in the last four quarters.

Transdigm Group delivered an earnings surprise of 15%, on average, in the last four quarters. The Zacks Consensus Estimate for fiscal 2021 earnings has moved 1.3% north in the past 60 days.

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