Northrop Makes Ties with Indonesia - Analyst Blog

By Zacks Equity Research,

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Northrop Grumman Corporation ( NOC ) has entered into an agreement with PT Industri Telekomunikasi Indonesia and the Research Centre for Electronics and Telecommunications of The Indonesian Institute of Sciences. The company has signed this Memorandum of Understanding during the Sixth National Radar Seminar at Bali in Indonesia.

Per the agreement, Northrop Grumman, with its advanced research and engineering and technical knowledge, will assist its Indonesian counterparts to develop and explore ground-based radar opportunities in the country. The deal will help the Indonesian government to secure its borders and also enhance its air surveillance control system.  

In order to extend and strengthen Northrop Grumman's defense pact with Indonesia and to understand its radar-based requirement, the company is planning to participate in the upcoming Indonesian ground-based radar competition.  

We view Northrop Grumman as a defense behemoth with a broad diversification of programs including a stronghold in the Electronic Systems segment, particularly in radars. The company's latest invention is AN/TPS-78. This modern advanced radar has high power transistor technology and can be used in unfavorable circumstances.

In January 2012, the company and its peer Lockheed Martin Corporation ( LMT ) signed an agreement worth $181 million with the U.S. Army. This contract included the first international purchase of 15 Block III LONGBOW Fire Control Radar systems by Taiwan. The companies also delivered 18 Radar Electronic Units, 14 Unmanned Aerial System Tactical Common Data Link Assembly systems and spares to the U.S. Army's AH-64D Block III Apaches.

We believe that the company is well positioned with a strong presence in the areas of cyber security, defense modernization and homeland security systems. Intelligence, surveillance and reconnaissance systems, sophisticated electronics and software development have also been Northrop Grumman's forte.

This expertise will come in handy in the current environment, given the focus of recent defense budgets. We expect this to translate to additional revenue and earnings growth for Northrop in the near term.

At the same time, we are concerned about the company's overt dependence on government contracts. We see a lower trend in order backlog in some of the prominent programs like the Global Hawk and the F-35 Joint Strike Fighter due to U.S. defense budget cutback.

The prevailing Euro-zone crisis, lower backlogs, cost overruns and reductions in Afghanistan and Iraq military deployments are reasons for concern. As a result, Northrop Grumman currently retains a Zacks #4 Rank, which translates into a short-term Sell rating.

Northrop Grumman is slated to release its first-quarter 2012 numbers on April 25, 2012. The Zacks Consensus Estimates for the first quarter 2012 is currently at $1.59 per share.

Northrop Grumman Corporation is a leading global security company providing innovative systems, products and solutions in aerospace, electronics, information systems, and technical services to government and commercial customers worldwide.

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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.

This article appears in: Investing , Business , Stocks
Referenced Stocks: LMT , NOC

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