Less than a year ago, Huntington Ingalls was growing revenue at mid-single digits. At $191 per share, the stock was down 36% from its all-time high of $300. In peacetime, manufacturing nuclear aircraft carriers, nuclear submarines and amphibious warships is simply not a high-growth business. Despite this uninspiring backdrop, a quick look at the weekly chart below convinced us that better times lied ahead.
Shared with readers on December 13th, 2024, it revealed that Huntington Ingalls was on the verge of completing a bullish Elliott Wave cycle. Its motive phase was a five-wave impulse, marked (1)-(2)-(3)-(4)-(5), where two lower degrees of the trend were visible within wave (3) and wave (4) was a triangle. The corrective phase, which follows every impulse, looked like an (a)-(b)-(c) flat correction. Waves (a) and (b) were already in place as simple a-b-c zigzags, while wave (c) was supposed to evolve into an impulsive structure.
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According to the theory, once a correction is over, the preceding trend resumes. Huntington Ingalls’ uptrend was clearly bullish prior to January, 2020, so it made sense to expect a recovery once wave (c) was over. With that in mind, we wrote that “chances are that we’re going to see a drop below $160, before the preceding uptrend … can resume.” The updated chart below shows what happened next.
The company published its Q3 earnings today, showing 16% YoY sales growth, record backlog and boosting free cash flow guidance to $600m at mid-point. Apparently, Huntington Ingalls is a growth company now. And the stock reflects this change by trading north of $310 as of this writing, after wave (c) completed the pattern at $159 in February.
Note that wave (c) didn’t breach the bottom of wave (a), which makes this correction a running flat. This type of retracement means that the forces in the other direction are strong and it is usually followed by a big and powerful surge. So instead of taking profits in Huntington Ingalls stock, we think the bulls have more room to run.
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