Northrop Gets LITENING SE Contract - Analyst Blog


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Under the Low Rate Initial Production Program ("LRIP"), Northrop Grumman Corporation ( NOC ) has received two follow-on contracts worth $66 million from the U.S. Air Force to provide additional LITENING SE advanced targeting pods.

LITENING is a targeting pod integrated and mounted externally to an aircraft. LITENING significantly increases the combat effectiveness of the aircraft during day or night and under-the-weather conditions, in the attack of ground and air targets, with a variety of standoff weapons like laser guided bombs, conventional bombs and GPS-guided weapons.

These two follow on contracts form part of a seven-year indefinite delivery/indefinite quantity contract worth $920 million that was received by the company in October 2010. The 5-year base and two 1 year options contract represented a continuation of the LRIP program.

We believe that 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 recently, the company reported impressive fourth quarter 2011 results of $1.85 per share compared with $1.51 in the fourth quarter of 2010. Northrop results also exceeded the Zacks Consensus Estimate of $1.68 for the quarter.

However, these positives 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 the Afghanistan and Iraq operations. Thus, over the near term, we do not find any catalyst for Northrop Grumman. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Los Angeles-based Northrop Grumman Corporation is the third largest defense prime after The Boeing Company ( BA ) and Lockheed Martin Corporation ( LMT ) in the U.S. in terms of trailing twelve-month sales.

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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 Nasdaq, Inc.

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