HII

ACCE thesis

Huntington Ingalls builds nuclear-powered aircraft carriers and submarines exclusively for the U.S. Navy, operating the only shipyards capable of constructing these strategic assets. The company holds an effective duopoly with General Dynamics in submarine construction while maintaining a monopoly on carrier production at Newport News, creating insurmountable barriers to entry given the specialized facilities and decades-long workforce development required. HII's backlog surged to $49.5 billion in Q3 2024, driven by the Columbia-class submarine program and Ford-class carrier construction, providing revenue visibility stretching into the 2030s. Despite trading at 25.7x earnings, the stock offers compelling value given accelerating defense spending, with naval shipbuilding budgets climbing 18% year-over-year as geopolitical tensions drive Pentagon priorities toward power projection capabilities. Management expects margin expansion through 2025 as learning curves improve on new platforms, while the recent acquisition of Alion Science expands higher-margin services revenue to 25% of the business.

Snapshot