Posted on Thursday, January 10th, 2013 | In Stocks to Watch
Northrop Grumman Corporation (NOC) was awarded an $80 million indefinite-quantity/indefinite-delivery contract for Next Generation Command and Control Processor (NGC2P) Technology Refresh and Link 22 development.
The Space and Naval Warfare System Command, San Diego, California, was the contracting activity. The NGC2P system is a tactical data link (TDL) communication processor that provides critical real-time information about friendly and enemy activity during combat operations.
The contract deals with obsolescence issues in the current NGC2P system and assists system capability enhancements and new capability insertion, such as Link 22. Under the contract, Northrop is acquiring software and hardware system development, engineering services and technology refresh field change kits. This deal includes an option period, which if exercised, would bring the cumulative value of this contract to an estimated $95 million. Operations will be carried out in San Diego, California, which the company expects to accomplish by December 2017.
Going forward, Northrop Grumman’s strong balance sheet and cash flows provide substantial financial flexibility and a cushion for improving shareholder value through incremental dividend, ongoing share repurchases and earnings accretive to acquisitions. In the third quarter of 2012, the company repurchased 4.4 million shares for approximately $290 million. At the end of the first nine months of 2012, the company had a low long-term debt-to-capitalization of 27.0%. Total long-term debt was approximately $3.9 billion, with no significant maturities in the near term, along with cash holdings of $3.5 billion.
Falls Church, Virginia-based Northrop Grumman Corporation is one of the largest defense contractors in the U.S. The company supplies a broad array of products and services to the U.S. Department of Defense including electronic systems, information technology, aircraft, space technology, and systems integration services. These positives for Northrop Grumman stem from revenue growth across the board and a broad diversification of programs.
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. Also, its product line in high priority categories, such as defense electronics, unmanned aircraft and missile defense, gives Northrop Grumman an edge over competition.
Northrop Grumman’s backlog is expected to see further upside in the near future through unmanned aerial vehicle (UAV) platforms, including Broad Area Maritime Surveillance (BAMS), Fire Scout and Navy Unmanned Combat Air System (UCA).
Going forward, 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 apprehensions 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.
Like its peers, Embraer SA (ERJ) and General Dynamics Corporation (GD), the company presently retains a short-term Zacks Rank #3 (Hold) rating that corresponds to our long-term Neutral recommendation on the stock.
EMBRAER AIR-ADR (ERJ): Free Stock Analysis Report
GENL DYNAMICS (GD): Free Stock Analysis Report
NORTHROP GRUMMN (NOC): Free Stock Analysis Report
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