Huntington Ingalls Industries, Inc. (HII) | The Buildout — AI Infrastructure
The Verdict
HII is a U.S. defense shipbuilder that builds and maintains naval ships and provides defense technology services. Its link to the AI buildout is defense autonomy, mainly unmanned maritime systems and autonomy software inside Mission Technologies, not commercial AI compute. The company describes itself as America's largest shipbuilder.
| Market Cap | — |
| Revenue (TTM) | $13.2B |
| Revenue Growth | +14.0% |
| EBITDA Margin (TTM) | 7.6% |
| Net Debt | $2.9B |
| Earnings Beats | 5 of 7 |
| P/E (TTM) | — |
| EV/EBITDA (TTM) | — |
What We Like
- The submarine contract converted from pending to booked: $76.6B of total mods, with approximately $25B to Newport News and about $5.5B on Columbia; definitization is contemplated in Q3 2026 guidance.
- Shipbuilding operating margin has marched from 5.2% in 2024 to 5.9% in 2025 to a 6.0%–6.5% guide for 2026, with management referencing a 9%–10% longer-term aspiration.
- Backlog was $54.0B at March 31, 2026, before the submarine mods and other post-quarter awards.
- Shipbuilding revenue has grown double digits for four consecutive quarters; throughput is +12% year to date toward a 15% full-year goal.
- Mission Technologies won a $2.2B STRINGRAI task order after the quarter and reported above 10% EBITDA margin in Q2, against Q2 segment revenue of $760M.
What We’re Watching
- Ingalls had a labor-driven slow start after the March CBA; retention improved but hiring lagged, and the apprentice school is at full enrollment.
- Free cash flow is heavily back-half loaded: Q2 came in below forecast, with no change to the full-year expectation; cash was $12M at end of Q2.
- Mission Technologies revenue fell 3.9% YoY in Q2 and Q3 margin is guided to ~4% to fund unmanned capability and production capacity.
- LHA 8 delivery moved to 2027, and management did not quantify the submarine contract EAC or incentive magnitude on the latest call.
The thesis is strengthening on shipbuilding demand and margin trajectory, but it remains execution-dependent. The submarine contract went from pending to booked, guidance was raised, and shipbuilding revenue has grown double digits for four quarters. The watch items are labor, throughput, and back-half cash. The open question is whether HII converts its backlog and labor investments into on-time deliveries and Q4 cash.
Earnings Beat
Q2 FY2026 revenue was $3,418M, up 10.9% YoY, with gross margin of 13.2% and EBITDA of $289M (8.5% margin). Shipbuilding revenue rose 15.7% to $2.7B, the fourth consecutive quarter of double-digit growth, and contract awards were $6.7B. Net income was $208M and free cash flow was $43M, below forecast.
| Metric | Q2 FY2026 | Q1 FY2026 | Q2 FY2025 | YoY |
|---|---|---|---|---|
| Revenue | $3.4B | $3.1B | $3.1B | +10.9% |
| Gross margin | 13.2% | 13.2% | 12.8% | +40bps |
| EBITDA | $289M | $231M | $237M | +21.9% |
| EPS | $5.27 | $3.79 | $3.86 | +36.5% |
| Shipbuilding revenue | $2.7B | $2.4B | n/a | +15.7% YoY |
| Contract awards | $6.7B | n/a | n/a | — |
there's $76.6 billion. When it comes to Newport News, it is approximately $25 billion of that. And about $5.5 billion on the Columbia program. The rest of that is, related with the Block VI.— Tom Stiehle, CFO, 2026-07-30
Management tone: On the 2026-05-05 call, management reaffirmed all guidance. On the 2026-07-30 call, the posture shifted to a raise, with management describing the submarine contract award as a promise kept and citing a fourth consecutive quarter of double-digit shipbuilding growth. They volunteered friction on Ingalls labor and back-half free cash flow, and declined to size the submarine contract EAC or cash impact.
Management Guidance
Management guided Q3 2026 shipbuilding revenue of approximately $2.6B and a shipbuilding operating margin similar to Q2's 6.3%, with Mission Technologies revenue similar to Q2's $760M and margin approximately 4%. The guided effective tax rate is 21%. For FY2026, it raised shipbuilding revenue to $10.2B–$10.4B and margin to 6.0%–6.5%, and reiterated Mission Technologies revenue of $3.0B–$3.2B, margin of approximately 5%, and its other guidance elements. Management said of the back-half revenue guide, 'there is probably a little conservatism in there.'
Trajectory
Consolidated revenue has been uneven quarter to quarter but was up 10.9% YoY in Q2 FY2026, and shipbuilding revenue has grown double digits for four consecutive quarters. Mission Technologies revenue fell 3.9% YoY in Q2. Shipbuilding margins are moving up: 5.2% ROS in 2024, 5.9% in 2025, and a 6.0%–6.5% guide for 2026, with a quarterly path the CFO cited as 5.8% to 6.0% to 6.3%. The driver is throughput, up 12% year to date toward a 15% full-year goal. Free cash flow is heavily back-half loaded and came in below forecast in Q2.
The Model
The model projects FY+1 revenue of $13,350M and EBITDA of $1,081M (8.1% margin). For FY+2, it projects revenue of $14,200M and EBITDA of $1,242M (8.75% margin). The near-term anchor is shipbuilding throughput and the newly definitized submarine contract; FY+2 depends on delivery execution, distributed-shipbuilding capacity, and whether Mission Technologies' unmanned investments begin to contribute.
| Metric | FY2025 | Next FY (E) | Following FY (E) |
|---|---|---|---|
| Revenue | $12.5B | $13.3B | $14.2B |
| YoY Growth | — | +6.9% | +6.4% |
| EBITDA | $962M | $1.1B | $1.2B |
| EBITDA Margin | 7.7% | 8.1% | 8.8% |
Projections are the median of 4 independent model runs. The model’s revenue sits 3.6% above analyst consensus.
Management guided Q3 2026 shipbuilding revenue of approximately $2.6B and a shipbuilding operating margin similar to Q2's 6.3%, with Mission Technologies revenue similar to Q2's $760M and margin approximately 4%. The guided effective tax rate is 21%. For FY2026, it raised shipbuilding revenue to $10.2B–$10.4B and margin to 6.0%–6.5%, and reiterated Mission Technologies revenue of $3.0B–$3.2B, margin of approximately 5%, and its other guidance elements. Management said of the back-half revenue guide, 'there is probably a little conservatism in there.'
What Could Go Right — and Wrong
- Throughput exceeds the 15% full-year goal, lifting fixed-cost absorption and shipbuilding margin toward the 9%–10% longer-term aspiration.
- Submarine contract definitization lands in Q3 2026 and incentive milestones are met, converting the award into revenue and year-end cash.
- ROMULUS/MUSV at-sea testing in September 2026 leads to a production award, making the autonomy narrative a revenue line.
- The $2.2B STRINGRAI task order converts into Mission Technologies revenue at or above segment margins.
- Battleship and frigate programs get enough detail to enter guidance, adding a new medium-term revenue program.
- Throughput lands below 15%, pressuring the raised shipbuilding revenue and margin guides.
- Q4 free cash flow falls short of the back-half-loaded full-year plan, against a thin cash balance.
- An adverse EAC on the new submarine contracts or within RCOH resets the margin trajectory.
- Mission Technologies stays flat-to-down while the Q3 margin step-down to ~4% continues, leaving the unmanned investment unfunded by revenue.
- An appropriations delay slows conversion of booked backlog into revenue.
Looking Ahead
Over the next 12 months, HII's execution on five ship deliveries, submarine contract definitization, and back-half free cash flow will determine whether the raised guidance holds. The September 2026 ROMULUS/MUSV at-sea testing milestone is the near-term test of the autonomy story, while FY2027 appropriations and the funding of unfunded backlog remain the policy gate.
- September 2026ROMULUS/MUSV at-sea test — Tests whether autonomy advances toward a production award.
- Q3 2026Submarine contract definitization — Definitization contemplated in Q3 guidance; incentives and cash in focus.
- Q3 2026Q3 results vs guide — Tests shipbuilding ~$2.6B, margin ~6.3%, MT ~4%.
- Q4 2026Q4 cash generation — Must deliver significant Q4 FCF under a back-half-loaded full-year plan.
- 2026Five ship deliveries — Five ships over next 12 months, three at Ingalls; LPD 30, SSN-800.
- 2027LHA 8 and CVN 79 deliveries — LHA 8 planned delivery 2027; CVN 79 final delivery 2027.
Financials
Annual Summary
| Metric | FY2024 | FY2025 | TTM | YoY |
|---|---|---|---|---|
| Revenue | $11.5B | $12.5B | $13.2B | +8.2% |
| Gross Margin | 12.6% | 12.8% | 12.6% | +20bps |
| EBITDA | $861M | $962M | $1.0B | +11.7% |
| EBITDA Margin | 7.5% | 7.7% | 7.6% | +24bps |
| Net Income | $550M | $605M | $661M | +10.0% |
| Free Cash Flow | $279M | $1.1B | $376M | — |
| Net Cash | — | — | — | — |
Key Ratios (Trailing)
- P/E TTM—
- EV/EBITDA TTM—
- EV/Revenue TTM—
- Price/FCF TTM—
- Gross Margin (TTM)12.6%
- EBITDA Margin (TTM)7.6%
- Net Margin (TTM)5.0%
- ROIC6.6%
- FCF Conversion37.4%
- SBC / Revenue0.4%
The Company
HII describes itself as a global, all-domain defense partner and America's largest shipbuilder. It operates three segments: Ingalls designs and constructs non-nuclear ships for the U.S. Navy and U.S. Coast Guard; Newport News handles nuclear ship design, construction, overhaul, refueling, and repair, including nuclear-powered aircraft carriers and submarines; Mission Technologies provides services and products such as unmanned autonomous systems and LVC training. The 10-K says approximately 81% of 2025 revenue came from the U.S. Navy.
HII operates through owned and leased shipyards and a distributed shipbuilding network. Its main shipyards are in Pascagoula, Mississippi, 800 acres along the Pascagoula River, and Newport News, Virginia, approximately 550 acres near the James River. It also has a leased 45-acre site in Charleston, South Carolina, acquired via W International in January 2025, and Mission Technologies headquarters in Fairfax and McLean, Virginia. The 10-K says HII must procure some materials from U.S. government-approved sources and that only one supplier may exist for certain components.
Business Segments
Competitive Landscape
The 10-K says Newport News and Ingalls compete primarily with General Dynamics, and in certain non-nuclear shipbuilding programs with smaller shipyards. HII also has a teaming agreement with Electric Boat Corporation, a division of General Dynamics, to build Virginia-class submarines, making Electric Boat both teammate and counterpart. BWXT separately names HII among its competitors in naval nuclear and government services.
- General Dynamics10-K says Newport News and Ingalls compete primarily with General Dynamics; its Electric Boat division is also HII's teaming partner on Virginia-class submarines.
- Electric Boat CorporationA division of General Dynamics; teaming partner and counterpart on Virginia-class (SSN 774) submarine construction.
- BWXTNames HII among its competitors in delivery of goods and services to the U.S. Government and in the naval nuclear supply chain.
Supply Chain
HII sits at the center of U.S. naval shipbuilding, buying steel, components, and subcontracted units from government-approved and sometimes sole sources, then delivering ships and technology services to the U.S. Navy and other federal agencies.
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