Huntington Ingalls Industries, Inc.HIINYSE

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DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $792.49 per share(market-calibrated)

+80.0%

Upside to Fair Value

Current

$440.33

Pure Model

$853.58

Fair Value

$792.49

Bull Case

$1,014.41

Bear Case

$714.66

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

0.50%

Calibrated Growth

1.64%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $853.58.

What's Driving This Ratingfor HII

✓

CapEx already efficient

CapEx at 2.69% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

↑

Margin expansion modeled

Current EBIT margin is 7.38% — below the sector mature average of 13.00%. Model expands margins as the business scales and operating leverage kicks in. Year 10 EBIT reaches $2.1B (11.16% margin).

→

Moderate revenue growth

Analyst consensus projects 3.46% revenue growth, fading to 2.25% by Year 10. Revenue reaches $18.9B (vs $12.5B today).

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 175bps below the model's 2.25%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 61.07% indicates efficient cash generation. FCF reaches $1.6B by Year 10 (8.43% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.33

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)5.98%

Cost of Debt

Pre-tax Cost of Debt3.09%

Tax Rate22.14%

After-tax Cost of Debt2.41%

Equity Weight (E/V)84.62%

Debt Weight (D/V)15.38%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (84.62% × 5.98%) + (15.38% × 2.41%)

= 5.50%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$12.9B	$14.6B	$15.9B	$17.4B	$18.9B
EBIT	$953M	$1.1B	$1.2B	$1.6B	$2.1B
Tax	$211M	$238M	$260M	$361M	$467M
NOPAT	$742M	$836M	$914M	$1.3B	$1.6B
+ Depreciation	$342M	$385M	$421M	$460M	$500M
- Capex	$347M	$391M	$427M	$466M	$507M
- Δ NWC	$43M	$85M	$82M	$69M	$42M
Free Cash Flow	$694M	$746M	$826M	$1.2B	$1.6B
Discount Factor	0.948	0.852	0.765	0.687	0.585
Present Value	$658M	$635M	$632M	$821M	$933M

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$1.6B

Terminal Growth Rate2.25%

WACC5.50%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$50.1B

PV of Terminal Value$29.3B

Exit Multiple Method

Year 10 EBITDA$2.6B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$47.0B

PV of Terminal Value$27.5B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$7.5B

PV of Terminal Value$29.3B

Enterprise Value$36.8B

(-) Net Debt$2.4B

Equity Value$34.5B

Shares Outstanding39M

Price per Share$877.15

Exit Multiple Method

PV of Projected FCFs$7.5B

PV of Terminal Value$27.5B

Enterprise Value$35.0B

(-) Net Debt$2.4B

Equity Value$32.6B

Shares Outstanding39M

Price per Share$830.01

Pure Model Fair Value

$853.58

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
3.50%	$1,223.89	$1,277.68	$1,222.08	$1,169.13	$1,118.68
4.50%	$932.96	$1,009.27	$1,119.50	$1,169.13	$1,118.68
5.50%	$762.93	$802.21	$853.58	$923.62	$1,024.79
6.50%	$646.69	$669.75	$698.24	$734.32	$781.50
7.50%	$559.84	$574.55	$592.06	$613.26	$639.45

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$714.66

62.3% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.41

Base Case

$853.58

93.8% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 0.33

Bull Case

$1,014.41

130.4% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 0.30

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth3.46%

Year 3 Revenue Growth6.20%

Year 5 Revenue Growth5.42%

Year 7 Revenue Growth4.15%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin7.38%

Terminal EBIT Margin13.00%

Tax Rate22.14%

Historical Capex / Rev2.69%

NWC / Revenue10.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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