Northrop (NOC) Secures $376M Navy Deal For G/ATOR Radar

Defense giant Northrop Grumman Corp.’s (NYSE:NOC) business unit, Electronic Systems, has secured a fixed-price-incentive contract from the U.S. Navy for procuring 9 Ground/Air Task-Oriented Radar (G/ATOR) low-rate initial production systems. The contract is valued at $375.6 million and contracting activity is the Marine Corps Systems Command, Quantico, VA.

The majority of the work will be executed at the Electronic Systems base in Linthicum Heights, MD, while the rest will be carried out in East Syracuse, NY; Stafford Springs, CT; Tulsa, OK; San Diego, CA and other locations across the U.S. Work is scheduled to be completed by Sep 2020. The contract will utilize fiscal 2014 and 2016 procurement funds as well as fiscal 2016 research, development, test and evaluation funds.

Qualities of G/ATOR

The G/ATOR is a highly mobile, three-dimensional, multi-mission radar system that helps to detect and track multi-faceted low-rated, low-radar hostile targets. The radar system also offers robust air traffic control capabilities to ensure the safety of Marines.

The importance of G/ATOR systems lies in its capability to perform multi-mission tasks at significantly lower operation and maintenance costs compared to other existing radar systems.

Upgrade of G/ATOR

Last week, Northrop announced the completion of a preliminary design review (PDR) and critical design review (CDR) of the Ground Weapon Locating Radar (GWLR) mode for the G/ATOR Block II (a new version). This paved the way for an initial integration event (IIE) in Oct 2016, which will comprise a testing of the G/ATOR’s ability to track and detect multiple types of mortar, artillery and rocket rounds simultaneously. Management expects to achieve initial operating capability for the G/ATOR Block II in mid 2018.

We note that, in second-quarter 2016, a decent ramp-up in the G/ATOR program resulted in higher Sensor and Processing volumes, which was partially responsible for low-single-digit sales growth at Northrop’s Mission Systems business segment (previously known as Electronic Systems).

Stocks to Consider

Northrop currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the aerospace and defense sector include Engility Holdings, Inc. (NYSE:EGL) , General Dynamics Corporation (NYSE:GD) and Ducommun Inc. (NYSE:DCO) . While Engility and Ducommun sport a Zacks Rank #1 (Strong Buy), General Dynamics carries a Zacks Rank #2 (Buy).

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