Northrop Cuts Cybersecurity Deal - Analyst Blog


Los Angeles-based leading defense contractor, Northrop Grumman Corporation ( NOC ) has been awarded a cybersecurity task order by the Defense Information Systems Agency (DISA). The contract is valued at $189 million over a three-year base period with two one-year options.

The task order aims to strengthen cybersecurity protections across all Department of Defense (DoD) and Intelligence Community networks by implementing the Host Based Security System (HBSS) as part of the DoD Information Assurance and Computer Network Defense contract. Per the contract, Northrop will provide software license maintenance support, training, help desk and architectural infrastructure support personnel. Initial work will be performed at Fort Meade, Maryland, with implementation activities across all DoD locations.

Los Angeles-based Northrop Grumman Corporation is one of the largest defense contractor in the U.S. The company supplies a broad array of products and services to the U.S. Department of Defense (DoD), including electronic systems, information technology, aircraft, space technology and systems integration services.

Northrop Grumman 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. However, these are offset by apprehension regarding defense cutbacks on high-cost platform programs, over-exposure to the DoD budget, lower backlog, cost over-runs and reductions in Afghanistan and Iraq operations.

With the successful spin-off of its Shipbuilding business, in March 2011, Northrop Grumman's revenue base is heavily skewed towards programs with a short business cycle. Barring Aerospace, the other three operating segments - Electronic Systems, Information Systems, and Technical Services - have shorter business cycles for most of their contracts. A shorter business cycle with low gestation would help the company with a fast turnaround of its capital, resulting in higher earnings.

The positive case for Northrop Grumman stems from revenue growth across the board and a broad diversification of programs. The company's backlog is expected to see further upside in the near future through unmanned aerial vehicle (UAV) platforms, including Broad Area Maritime Surveillance (BAMS), Fire Scout and Navy Unmanned Combat Air System (UCA).

Northrop Grumman's total order backlog at the end of fiscal 2011 stood at $39.5 billion compared with $46.8 billion at fiscal-end 2010. The lower trend in order backlog is expected to continue in 2012 as some of the prominent programs of the company like the Global Hawk and the F-35 Joint Strike Fighter are coming under the scanner of U.S. budget cuts.

We maintain our long-term 'Neutral' recommendation on Northrop Grumman. The quantitative Zacks # 3 Rank (short-term Hold rating) for the company indicates no clear directional pressure on the shares over the near term. This is in line with its peers like General Dynamics Corporation ( GD ) and Lockheed Martin Corporation ( LMT ).

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.

This article appears in: Investing , Business , Stocks

Referenced Stocks: GD , LMT , NOC

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