Northrop Grumman Corporation (NOC) has received an indefinite delivery, indefinite quantity (ID/IQ) contract with a total potential value of $997 million from the U.S. Army to provide force protection systems and components.
Under the direction of the Army Product Manager, Force Protection Systems, Fort Belvoir, Virginia, this ID/IQ five-year contract has been awarded to 19 companies including Northrop. The deal has a three-year base with a two-year option.
Per the contract, Northrop will be responsible for designing, developing, producing, integrating, testing, and installation of components and systems for early warning and protection of forces and critical assets. The company will also be in charge of technology insertion and training for the systems, under this contract.
Recently, Northrop also received a $388 million Mission Command Training Contract from the Department of the Army Mission and Installation Contracting Command Center — Fort Eustis. Per the contract, the company will provide training and technical services to support the U.S. Army Mission Command Training Program. The contract includes a one-year base with four option years.
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. Our bullish outlook on the company is supported by favorable projected revenue from diversified streams.
However, the positives 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. Thus, over the near term, we do not find any catalyst for Northrop Grumman and expect the company to perform in line with the broader market.
The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock. Given the situation, we would recommend investors to accumulate the company’s short-term Zacks #2 Rank (Buy rating) peer Raytheon Company (RTN).
Northrop Grumman is a leading global security company providing innovative systems, products and solutions in aerospace, electronics, information systems, and technical services to government and commercial customers worldwide. Northrop is the prime contractor for crucial force protection programs including Counter-Rocket, Artillery and Mortar, and Integrated Base Defense Security System.
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