On Apr 5, 2013, shares of
Northrop Grumman Corporation
) hit a 52-week high of $71.56. Previously, the company had
reported solid fourth-quarter results with a positive earnings
surprise of 18.39%. Northrop witnessed positive earnings
surprises in all the 4 quarters of 2012, with an average beat of
Operational efficiency, huge number of contracts, solid liquidity
position and effective cash deployment strategy has led
Northrop's share to attain this new high.
Northrop is a well-managed defense prime. Its inventory turnover
of 26.78 times in the trailing twelve months at the end of 2012,
compared to only 3.01 times for the Zacks industry average,
represents a strong sign of operational efficiency. In addition,
Northrop's operational effectiveness is evident in its
industry-high Return on Investment (ROI) of 13.2% in 2012. As of
Dec 31, 2012, the current ratio was 1.385 compared to 1.263 as of
Dec 31, 2011.
Also, the company is flooded with a number of sizeable contracts.
Total backlog at the end of 2012 was $40.8 billion versus $39.5
billion at the end of 2011. Moreover, the company is progressing
well on its research and development. In 2012, the company
incurred independent research and development expenses of $520
Recently, the company announced that it has introduced the
Fourth Generation Tracking Adjunct Sensor for its Hawk air
defense system. The new 4G TAS offers passive
electro-optical/infrared (EO/IR) initiating, tracking and
investigating competence to Hawk.
Northrop holds a good liquidity position. The company continues
to be a strong cash generator with its operating cash flow
reaching approximately $2.6 billion during 2012. Cash and cash
equivalents at the end of 2012 were $3.9 billion, up from $3
billion at the end of 2011.
Also, Northrop has an effective cash deployment strategy. In Sep
2012, the board of directors increased the company's outstanding
share repurchase authorization to $2 billion of common stock. In
2012, the company deployed $1.3 billion to repurchase 20.9
Besides share buybacks, Northrop deploys cash by paying
regular dividends. In May 2012, the company increased its annual
dividend for the ninth consecutive time, bringing the annualized
payout to $2.20 per share from $2 per share earlier. With the
current price of $71.56, the company generates a dividend yield
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We expect the incremental dividend and expanded share buybacks to
make the stock more attractive for investors. Also, the company's
sound liquidity position will allow the company to fulfill its
future financial commitments. Going forward, the company offers a
strong program portfolio positioned to take advantage of focus
areas in the defense space, an improving balance sheet and an
ongoing share repurchase program.
Northrop currently carries a Zacks Rank #3 (Hold). Other stocks
to consider are
Wesco Aircraft Holdings, Inc.
Alliant Techsystems Inc.
FLIR Systems, Inc.
). While FLIR Systems carries a Zacks Rank #1 (Strong Buy), Wesco
Aircraft Holdings and Alliant Techsystems hold a Zacks Rank #2