Northrop Grumman Corporation ( NOC ) was awarded by the U.S. Air Force a 30-month, $540 million contract for Total System Support Responsibility ( TSSR ) of the E-8C Joint Surveillance Target Attack Radar System (Joint STARS) fleet.
Per the contract Northrop Grumman would provide the 17-aircraft Joint STARS fleet with integrated logistics support. The Joint STARS fleet is the only all-weather, long-range, real-time, wide area surveillance and battle management and command and control weapons system in the world. Joint STARS is the only platform in the U.S. arsenal that combines accurate wide-area moving target detection with synthetic aperture radar imagery to locate, classify and track ground targets in all weather conditions from standoff distances.
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.
The downside in the value of defense primes in general and Northrop Grumman in particular is an extension of the tepid recovery rate of the U.S. economy, raising fears of further deterioration of the domestic fiscal situation. The apprehension is fueled by Defense Secretary Leon Panetta's ambitious plans to save $450 billion over the next ten years. We expect the Euro-area crisis to continue to cast a spell over the financial markets. The heightened uncertainty may contribute to sharply lower equity prices and wider risk spreads. We feel this will invariably lead to slow consumer spending and the general pull-back from risk may affect government spending on defense.
Northrop Grumman presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.
Based in Los Angeles Northrop Grumman 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. Some of its main competitors include General Dynamics Corporation ( GD ) and Lockheed Martin Corporation ( LMT ).