Northrop Grumman Corporation
) has signed a $1.7 billion or 1.2 billion euro contract for NATO's
Alliance Ground Surveillance system or AGS. Northrop Grumman will
be the prime contractor for the NATO AGS program and build the
Global Hawk air vehicle, supporting systems and payloads. The
contract also includes the purchase as well as initial operation
and maintenance of five Global Hawk unmanned aircraft and
transportable ground stations.
Operating under NATO command, the AGS is expected to be the
major data source for NATO's system for Joint Intelligence,
Surveillance and Reconnaissance or JISR. The main operating base of
NATO AGS will be located at Sigonella, Italy.
Los Angeles-based Northrop Grumman Corporation 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 downward
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 over-runs 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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