Huntington Ingalls Industries Expands Capacity for Naval Throughput

Huntington Ingalls Industries (HII), a leading provider of ships for the U.S. Navy and Coast Guard, is significantly expanding its shipbuilding capacity. This strategic move, involving partnerships with shipyards and fabricators across multiple states, aims to meet the escalating demand for naval vessels and enhance overall production speed and schedule reliability. The company projects a quadrupling of outsourced work hours within two years, building upon a doubling already achieved in 2025.

Detailing HII's Distributed Shipbuilding Model

HII is implementing a "distributed shipbuilding" model to increase throughput and strengthen the U.S. shipbuilding industrial base. This involves leveraging a growing network of 23 partner companies for structural assembly. For its Newport News Shipbuilding division, HII acquired a manufacturing facility in Goose Creek, South Carolina, now designated as Charleston Operations. This new site is dedicated to producing completed submarine modules and structural aircraft carrier units, with potential for future expansion.

Similarly, for Ingalls Shipbuilding in Pascagoula, Mississippi, select outfitted structural units for Arleigh Burke-class destroyers are being constructed, inspected, and accepted at partner locations before being delivered for final integration. HII has also forged international partnerships with Hyundai Heavy Industries and Babcock International Group to further enhance production efficiency and explore collaborative opportunities.

Chris Kastner, HII CEO and President, emphasized the company's commitment, stating:

"We've already doubled our outsourced hours in 2025 and we are on track to quadruple them in a two year period. Our hiring is up, our attrition is down, and our experience base is growing."

This expansion extends beyond HII's traditional labor market, tapping into existing skilled labor and facility capacity to mitigate supply chain risks, address past labor shortages, and improve cost predictability.

Market Response and Underlying Catalysts

The market has reacted with a generally bullish sentiment towards HII and the broader Aerospace & Defense Sector. This operational expansion is a direct response to persistent and growing demand from the U.S. Navy, which faces significant shipbuilding program delays—with some running one to three years behind schedule. The move is also critical in the context of global maritime power shifts, particularly with China's dominance in shipbuilding, accounting for 53% of global capacity in 2024 compared to the U.S.'s 0.1%.

Analysts recognize HII's pivotal role in national security. Bank of America, for instance, raised its price target for HII to $260 from $180, maintaining an 'Underperform' rating but acknowledging the company's "too big to fail" status as one of only two major nuclear submarine builders in the U.S. Wall Street analysts project an average 1-year price target of $279.78 for HII, with a range from $225.00 to $320.00, indicating confidence in its ability to capitalize on increased demand despite potential profitability pressures from higher outsourced volumes. The company reported a record backlog of $56.9 billion and exceeded Q2 2025 earnings expectations, driven by stabilized production and robust demand.

Broader Context and Strategic Implications

This aggressive capacity expansion by HII is situated within a broader national effort to rebuild U.S. naval capacity. American lawmakers have actively explored partnerships with leading shipbuilders in South Korea and Japan to bolster naval capabilities, particularly for noncombatant vessels. Senator Tammy Duckworth (D-Ill.) underscored the urgency:

"We already have fewer capacity now than we did during Operation Iraqi Freedom... We have to rebuild the capacity. At the same time, what capacity we have is aging and breaking down and taking longer and more expensive to fix."

The Pentagon has requested $47 billion for shipbuilding in its latest annual budget, highlighting the governmental priority given to addressing naval readiness. HII's strategy of increasing outsourced work is explicitly designed to expand the industrial base, even with the understanding that outsourcing can come with a premium. The company aims to protect profit margins on new contracts by factoring in these increased costs. Furthermore, HII is integrating Industry 4.0 technologies, including artificial intelligence and additive manufacturing, to optimize production cycles and enhance efficiency.

Outlook: Sustained Demand and Execution Focus

Looking ahead, the demand for HII's shipbuilding services is expected to remain robust, driven by ongoing U.S. Navy modernization efforts and the broader geopolitical landscape. The company projects mid-to-long term shipbuilding margins of 9-10% and anticipates free cash flow between $300 million and $500 million for 2025. While the distributed shipbuilding model presents a pathway for increased throughput and reduced bottlenecks, successful execution of such a large-scale expansion will be critical. The integration of new partners, facilities, and international collaborations will require stringent oversight to maintain quality and schedule adherence. Investors will monitor HII's ability to manage the complexities of this expanded network while delivering on its financial targets and addressing the nation's pressing naval needs.