Northrop Earnings: Free Cash Flow Rules the Day, Notwithstanding Some Cost Pressure; Valuation Up 8%

Northrop Grumman reported 2023 fourth-quarter and annual results mostly consistent with our 2023 forecast except for a charge against future profits on the B-21 Bomber program. Nonetheless, our outlook for the firm's ability to generate free cash flow, buy back shares, and eke out incremental profitability on its major programs over time remains, and we have increased our fair value estimate from $446 to $480 per share. We also added the time value of money to our fair value estimate since we last published our model and noted an improvement in Northrop's working capital position that seems likely to persist enough to also nudge our free cash flow estimates upward.