Huntington Ingalls Industries (HII) stock surged 5.08% in pre-market trading on Friday, following the company's Q4 2024 and full-year earnings release. While HII reported a decline in earnings and margins due to challenges from pre-COVID contracts and operational issues, the company's robust outlook and significant new contract wins fueled investor optimism.

HII secured $12 billion in new awards in 2024, boosting its backlog to $49 billion, with $27 billion funded. Notably, the company expects to secure over $50 billion in additional contract awards over the next two years. These new contracts are being negotiated with inflation protection and more balanced risk sharing, providing opportunities for margin improvement as HII transitions away from pre-COVID contracts.

To address operational challenges, HII is implementing initiatives to improve throughput by 20% year-over-year in 2025, achieve $250 million in annual cost reductions, and enhance its workforce and supply chain management. The company has acquired an advanced metal fabricator, increasing its workforce by 500 highly trained personnel, and plans to significantly increase outsourcing and insourcing to address skill gaps.

Chris Kastner, HII's President and CEO, expressed confidence in achieving a 9% margin level in the future, stating, "I absolutely believe that 9% is possible moving forward. The customer has been very receptive to understanding the current economic environment, and we will get inflation protection in those new contracts."

With strong demand for its products and services, HII anticipates growing to $15 billion in annual revenue by 2030, with associated margin expansion and free cash flow growth. The company's positive outlook and strategic initiatives to address operational challenges have bolstered investor confidence, driving the pre-market surge in its stock price.