We See Moaty Cash Flows to the Far Horizon for Huntington Ingalls

Regulated margins, mature markets, customer-paid research and development, and long-term revenue visibility allow defense contractors to deliver a lot of cash to shareholders, which makes up for slow growth in this industry. Defense budgets usually ebb and flow with a nation's wealth and its perception of danger: in the U.S. and among its allies both have been on the rise, and geopolitics is leading to larger military budgets than we've seen for decades. For perspective, we estimate that the portions of the U.S. defense budget relevant to Huntington Ingalls and its peers shrank in 2012-17 by 2.6% while they grew in 2018-23 by 6.5%, annualized. We think the contracting budget will continue to grow, but more moderately, averaging around 2.5%-3.0% over the next five years.