On Jan 9, 2014, shares of Northrop Grumman Corp. (NOC) soared to a new 52-week high of $153.64, finally ending the trading session a little lower at $152.74. This defense prime with a market cap of around $30.85 billion has seen its shares rise roughly 31.25% in the past one year, outperforming the 11% gain of the S&P 500 over the same period.
What’s Driving Northrop Grumman Up?
Northrop Grumman is effectively battling the current sequestration wave thanks to its diversified business mix and strategic acquisitions. With rising security tensions in the Middle East, foreign military sales could prove to be the key performance catalyst for Northrop.
The company’s international sales increased 20% in 2013 to $2.5 billion and will likely represent 13% of revenues in 2014, up from 10% in 2013. This could trigger 20%–25% annualized growth in international sales in 2014, considering the mid-point of the company’s guided range.
The company has beaten the Street consensus in three of the four last quarters posting a 2.67% average positive earnings surprise. The company has by now achieved over 60% of its 60 million share repurchase target for end 2015. The robust cash generation capability has allowed Northrop to buy back shares and pay dividends consistently to its shareholders.
Northrop Grumman is taking several initiatives to ensure further alignment with customer needs in order to increase affordability and drive cost competitiveness. The company’s establishing the five Aerospace Design Centers of Excellence in support of manned aircraft, unmanned systems and electronic attack businesses was geared towards this end.
Northrop continues to progress well on its unmanned programs, such as, NATO AGS and Fire Scout. Furthermore, the fiscal 2015 budget provides incremental spending for the Space-Based Infrared System (SBIRS) Geosynchronous Earth Orbit (GEO) 5 & 6 satellite program. The company’s advancement of the Global Hawk program has also caught the interest of Korea and several other countries.
The company is scheduled to report its fourth quarter as well as 2014 financial results on Jan 29, 2015.
The expected long-term earnings growth rate of the company is set at 6.47% and the Zacks Consensus Estimate for 2014 reflects an estimated 20.3% jump to $9.48 from $7.88 earned in 2013.
Northrop Grumman is a Zacks Rank #2 (Buy) stock. Other companies in the defense space worth considering include The Boeing Co. (BA), General Dynamics Corp. (GD) and Huntington Ingalls Industries, Inc. (HII), all with a Zacks Rank #2.
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