Company Reports

Northrop Grumman reported second-quarter 2024 results very close to our expectations, and management again tweaked this year's sales and profit guidance slightly upward. We didn't change our long-term forecasts, and the time value of money added $8 to our fair value estimate, which is now $563 per share.

Northrop Grumman has a strong focus on producing hardware for classified programs and currently enjoys exposure to some hefty military development programs that are early in their life cycle.

Northrop Grumman reported first-quarter 2024 results very close to our expectations, and management tweaked this year's sales and profit guidance slightly upward. Operating margin improvement in the first quarter was driven by productivity gains materializing earlier in the year than the company had anticipated but don't meaningfully impact the full-year outcome. We added to our 2024 estimates for aviation and shaved a few basis points of revenue growth from space, per management's expectations, which added $2 to our fair value estimate and time value of money added $6 more. All told, we have raised our fair value estimate an additional 14% to $555 per share from $480 based on our conviction in this wide-moat firm's discipline and ability to reinvest for success year over year. To reflect this, we raised our estimate of the company's midcycle earnings growth to 6.5% from 4.5% and upped the quotient of those earnings we think the company can successfully compound internally to a midcycle average of 25% from a less-than-average 10%, giving it a few more years of historically consistent returns on capital before our model assumes competition will eventually erode economic profits 20 years hence.

Northrop Grumman has a strong focus on producing hardware for classified programs and currently enjoys exposure to some hefty military development programs that are early in their life cycle.

We are reviewing President Joe Biden's fiscal 2025 defense budget request, released March 11, which is limited by a compromise struck in mid-2023 to avoid government shutdown at only a 1% increase over the 2024 sum.

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.

Northrop Grumman has a strong focus on producing hardware for classified programs and currently enjoys exposure to some hefty military development programs that are early in their life cycle.

Northrop Grumman has a strong focus on producing hardware for classified programs and currently enjoys exposure to some hefty military development programs that are early in their life cycle.

Northrop Grumman reported third-quarter results mostly consistent with our 2023 forecast. Even so, management revised its 2023 revenue expectations upward in aeronautics and space, while slightly lowering them for operating margin in the mission systems business.

Northrop Grumman has a strong focus on producing hardware for classified programs and currently enjoys exposure to some hefty military development programs that are early in their life cycle.

We see Oct. 9, 2023's sudden price increase in defense stocks as an overblown and simplistic reaction to the outbreak of war in Israel and Gaza. As we have pointed out before, the dots between military combat and the profit of a defense contractor do not connect nearly as directly as they seem to in the investing public's imagination. We will not alter our ratings or valuations of defense contractors in light of this news, and we believe long term development and resupply of missile defense technology are already baked sufficiently into our forecasts.

Northrop Grumman reported second-quarter results very consistent with our 2023 forecast, and management revised its 2023 revenue expectations slightly upward while slightly lowering them for operating margin in the space business. We have raised our fair value estimate to $434 from $428, mostly because of the time value of money and a slightly lower share count, as the firm continues to plow money back to shareholders. Our forecast is otherwise unchanged.

Northrop Grumman has a strong focus on producing hardware for classified programs and currently enjoys exposure to some hefty military development programs that are early in their life cycle.

Northrop reported first-quarter results basically in line with our 2023 forecast, and management reaffirmed its 2023 expectations. Discussion of the quarter focused on Northrop's exposure to big-budget defense programs, its space business, and overall growth potential. We have raised our fair value estimate to $428 from $423, mostly to account for a shrinking share count, as the firm continues to plow money back to shareholders. Our forecast is otherwise unchanged.

Northrop Grumman has a strong focus on producing hardware for classified programs and currently enjoys exposure to some hefty military development programs that are early in their life cycle.

With a fresh look at Northrop Grumman, we have increased our fair value estimate to $423 per share from $368, as Northrop's sales accelerated in the fourth quarter of 2022, rounding out an otherwise sluggish year, and to account for increasing cash flow generation in the near and medium term.

Northrop Grumman has a strong focus on producing hardware for classified programs and currently enjoys exposure to some hefty military development programs that are early in their life cycle.

Wide-moat-rated Northrop Grumman posted mixed third-quarter results, as diluted EPS of $5.89 missed FactSet consensus by 4% but orders and backlog remained resilient. Management anticipates full-year 2022 results near the lower end of guidance as the company grapples with persistent supply chain constraints. Full-year 2023 guidance, while still positive, was also subdued by slower expected growth in aeronautics and defense. We see no reason to alter our long-term outlook. The company earned $8.7 billion in contract awards and increased backlog year over year to nearly $80 billion, which we expect will percolate through to financial performance over time. We maintain our $368 per share fair value estimate as our moderated near-term forecast offsets the time value of money.

We view Northrop Grumman as a prime contractor that has exposure to younger development programs and one that has a greater focus on producing hardware for classified programs. The defense budget allocation is a political process, which is inherently difficult to predict, so we favor companies with tangible growth profiles through a steady stream of contract wins, ideally to contracts that are fulfilled over decades. And many programs are indeed procured and sustained over decades; for instance, the Ground Based Strategic Deterrent, for which Northrop was the only bidder, is intended to be deployed around 2029. Regulated margins, mature markets, customer-paid research and development, and long-term revenue visibility allow the defense primes to deliver a lot of cash to shareholders, which we view positively because we don’t see substantial growth in this industry.

Wide-moat-rated Northrop Grumman posted a sales decline due to supply chain issues and as it manages the wind-down of several products in its portfolio, but the book/bill ratio came in at an excellent 1.48, indicating there is significant demand for Northrop's products. Sales of $8.8 billion missed FactSet estimates by 2.8%, but earnings per share of $6.06 beat these estimates by 0.1%. After adjusting our model for second-quarter earnings, we are increasing our fair value estimate for Northrop to $368 per share from $363 due to the time value of money.