Northrop Grumman Corporation
) announced that it has signed a definitive agreement to acquire
privately held M5 Network Security Pty Ltd.
M5 Network Security is a Canberra, Australia-based provider of
cybersecurity and secure mobile communications products and
services, and advanced analytics to Australian military and
intelligence organizations. The acquisition is however subject to
the approval of the Australian government. The company expects to
complete the transaction by fiscal-end 2012.
The acquisition would enhance Northrop's Australian market
exposure in the fields of cybersecurity and communication
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 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 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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