Northrop Grumman Corporation
) was awarded a $108 million contract by the U.S. Air Force to
upgrade its fleet of B-2 stealth bombers. There are 20 B-2s in the
U.S. fleet, with 19 at Whiteman Air Force Base in Missouri and 1
used for flight testing at Edwards Air Force Base in California.
The contract covers new software and hardware that increases the
processing power of the plane, creating a more advanced
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While Northrop is the prime contractor for installation, the parts
for the upgrade were designed with a number of partners. The
upgrade will include a processing unit designed by
Lockheed Martin Corporation
) and a disk drive unit developed by
Honeywell International Inc.
). To support the new processing units, Northrop is also installing
a network of fiber-optic cables inside the bomber.
Going forward, Northrop Grumman's strong balance sheet and cash
flows provide substantial financial flexibility and a cushion for
improving shareholder value through incremental dividend, ongoing
share repurchases and earnings accretive acquisitions. In the
second quarter of 2012, the company repurchased 4.9 million shares
for approximately $295 million. At the end of the first half of
2012, the company had a low long-term debt-to-capitalization of
26.5%. Total long-term debt was approximately $3.9 billion, with no
significant maturities in the near term, along with cash holdings
of $3.1 billion.
Falls Church, Virginia-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 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 programs.
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.
Northrop Grumman'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).
Going forward, 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.
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.
Like its peers,
General Dynamics Corporation
), the company presently retains a short-term Zacks #3 Rank (Hold)
that corresponds with our long-term Neutral recommendation on the