Northrop Grumman Corporation
) has received a series of follow-on contracts from the Japanese
Maritime Self-Defense Force or JMSDF to provide three additional
AQS-24A airborne mine hunting systems.
The contracts, which also include airborne electronics and
ground-based support equipment, come on the heels of an initial
contract awarded in October last year to Northrop Grumman to
deliver Japan's first AQS-24A. The Japanese Maritime Self-Defense
Force will use all four complete AQS-24A airborne mine hunting
sonar systems on its new MCH-101 helicopters.
Northrop Grumman said that the contract award marks the completion
of a technology transition with Japan, which allows for certain
components of the airborne electronics to be manufactured in Japan.
The equipment support effort represents the initial establishment
of in-country support capability and infrastructure for the
AQS-24A, which will eventually enable the JMSDF to provide complete
logistical support for the AQS-24A systems. Follow-on contracts for
additional systems, electronics and support equipment are expected
in 2013 and will continue until the JMSDF reaches its full
operational inventory objective.
Northrop Grumman is one of the largest defense contractors 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. The positive case for Northrop Grumman stems
from revenue growth across the board and a broad diversification of
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. Also, its
product line in high priority categories, such as defense
electronics, unmanned aircraft and missile defense, gives Northrop
Grumman an edge over competition.
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). Thus, the quantitative Zacks #2
Rank (short-term Buy rating) for the company indicates upward
directional pressure on the shares over the near term.
However, these are offset by apprehension regarding defense
cutbacks on high-cost platform programs, over-exposure to the DoD
budget, lower backlog, cost overruns and reductions in Afghanistan
and Iraq operations.
We maintain our long-term Neutral recommendation on Northrop
Grumman. This is in line with its peers like
General Dynamics Corporation
Lockheed Martin Corporation
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