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Northrop Grumman Corporation (NOC): New Analyst Report from Zacks Equity Research - Zacks Equity Research Report

Posted: 2/28/2014 7:00:00 AM
Referenced Stocks: NOC;TS

We have maintained our Neutral recommendation on Northrop Grumman Corp. following the third-quarter 2014 results. Earnings beat expectations despite a pension headwind from the HATFA legislation. As a result of its strong performance, it boosted its 2014 guidance, which assumes a segment margin in the high 12% range. Foreign military sales remain the primary growth driver at Northrop Grumman, offsetting the slowdown in domestic contract flows. The company's product innovation and diversified business operations will help maintain a stable earnings stream. Nonetheless, a plummeting order backlog and the ramp-down of military programs are major concerns.


Falls Church, VA-based Northrop Grumman Corporation (NOC) 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. Currently, the company operates under four reporting segments. These are as follows:

Aerospace Systems (AS) based in Redondo Beach, CA, focuses on the development, integration, production and support of manned and unmanned aircraft, spacecraft, high-energy laser systems, and microelectronics. Its products are used mainly for intelligence, surveillance and reconnaissance communications battle management strike operations electronic warfare missile defense earth observation space science and space exploration. The segment generated revenues of $10.0 billion in 2013, up 0.4% year over year.

Electronic Systems (ES), based in Linthicum, MD, designs, develops, manufactures and integrates a variety of advanced electronic and maritime systems for both defense and select non-defense applications. It provides systems for applications like airborne surveillance, aircraft fire control, precision targeting, electronic warfare, automatic test equipment, inertial navigation, integrated avionics, space sensing, intelligence processing, air and missile defense, communications, mail processing, biochemical detection, ship bridge control and radar, ship machinery controls and shipboard components. This unit contributed $7.1 billion of revenues in 2013, up about 3% from the year-ago level.

Information Systems (IS), headquartered in Reston, VA, provides advanced solutions for the DoD, national intelligence, federal civilian, state and local agencies, and commercial customers. Products and services are focused on the fields of command, control, communications, computers and intelligence air and missile defense airborne reconnaissance intelligence processing decision support systems cybersecurity information technology and systems engineering and systems integration. The segment generated $6.6 billion of revenues in 2013 compared with $7.4 billion in 2012.

Technical Services (TS), based in Herndon, VA, provides logistics, infrastructure and sustainment support, while also providing a wide array of technical services including training and simulation. The segment provides infrastructure management and maintenance, training and preparedness, and logistics and life cycle management in a wide array of operating environments. This division's top line declined approximately 6% year over year to $2.8 billion in 2013.

Total order backlog as of Jun 30, 2014 was $35.55 billion, down 3.9% from $37.03 billion as of Dec 31, 2013.

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