Markets
NOC

Northrop (NOC) Hits 52-Week High on Sustained ISR Focus

An image of some people shaking hands
Credit: Shutterstock photo

Shares of Northrop Grumman Corp.NOC scaled a new 52-week high of $177.78 on Oct 12, finally closing the trading session a little lower at $177.19. With a market cap of around $33.20 billion, the defense prime has seen its shares soar roughly 42.68% in the past one year, outperforming the 7.44% gain of the S&P 500 over the same period.

What's Driving Northrop Grumman?

As domestic contracts continue to see a downward trend, foreign military sales or FMS are providing the much needed respite and acting as a key performance catalyst for Northrop. The company's international contracts comprised about 14% of the backlog at the end of 2014. The company expects international sales to increase by about 15% in 2015 as it continues to witness strong demand for its products on a global scale with established programs like F-35 and E-2D, Triton, and SABR radar, as well as a robust set of new programs.

Northrop Grumman has a diversified business mix to help it counter budget constraints in the aerospace and defense industry effectively. In response to asymmetric terrorist threats, the emphasis appears to have shifted to high-tech intelligence equipment, replacing demand for conventional big guns and heavy armor. Defense companies will increasingly be required to come up with more sophisticated intelligence, surveillance and reconnaissance ("ISR") technologies.

To that extent, Northrop announced a restructuring of its business to focus on its space and airborne ISR business. It is also the proud owner of Global Hawk, an unmanned system with the ability to transform itself into an operational weapons system when required. Its timely shift in focus toward ISR technologies will allow the company to witness significant gains, going forward. Recently, Northrop won an indefinite-delivery/indefinite-quantity contract from the U.S. Air Force for the Global Hawk unmanned surveillance plane, worth $3.2 billion .

Again, Northrop's strong balance sheet and steady cash flow position offer substantial financial flexibility and scope for incremental dividends, ongoing share repurchases and earnings accretive acquisitions. Last month, its board of directors authorized the repurchase of an additional $4 billion worth of shares as part of a new buyback authorization. The company is on track to complete its 60 million share repurchase target this year. Its robust cash generation capability allows Northrop to fund capital investment programs and sustain shareholder friendly moves.

Zacks Rank

Northrop Grumman is a Zacks Rank #2 (Buy) stock. Some of the other companies in the defense space worth considering include Lockheed Martin Corp. LMT , General Dynamics Corp. GD and Huntington Ingalls Industries, Inc. HII , all with a Zacks Rank #2.

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days.Click to get this free report >>

Want the latest recommendations from Zacks Investment Research? Today, you can download 7 Best Stocks for the Next 30 Days. Click to get this free report

NORTHROP GRUMMN (NOC): Free Stock Analysis Report

GENL DYNAMICS (GD): Free Stock Analysis Report

LOCKHEED MARTIN (LMT): Free Stock Analysis Report

HUNTINGTON INGL (HII): Free Stock Analysis Report

To read this article on Zacks.com click here.

Zacks Investment Research

The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

In This Story

NOC GD LMT HII

Other Topics

Stocks

Latest Markets Videos

Zacks

Zacks is the leading investment research firm focusing on stock research, analysis and recommendations. In 1978, our founder discovered the power of earnings estimate revisions to enable profitable investment decisions. Today, that discovery is still the heart of the Zacks Rank. A wealth of resources for individual investors is available at www.zacks.com.

Learn More