Falls Church, VA-based Northrop Grumman Corp. (NYSE:NOC) has won a contract from the U.S. Navy for providing engineering and logistics services for the Air Dominance Department of Naval Surface Warfare Center, Port Hueneme Division.
Details of the Deal
The latest contract is worth $15.0 million but it will have a cumulative value of $22.8 million if all the options are exercised. It was awarded by the Naval Surface Warfare Center, Port Hueneme, CA.
Per the contract, Northrop Grumman will provide services such as engineering, test and evaluation (T&E), interoperability, technical, computer programming, materials management, and specified logistics services required for AEGIS Combat System, major weapon systems programs, T&E and post-event analysis.
The company will provide these services at shore sites, land-based test facilities, shipyards and aboard ships in ports and at sea for the U.S., allied nations and foreign military sales (“FMS”) customers.
The contract includes 84% of purchases for the Navy; and 16% for the governments of Norway, South Korea, Spain, Bahrain, Italy, Australia and Japan under the FMS program.
Work is scheduled to be complete by Jan 2018 and work will be performed in Port Hueneme, CA, as well as other sites across the U.S. The contract will use fiscal 2017 other procurement (Navy) funds.
Price Movement
Northrop Grumman’s stock has improved about 31.8% in the last one year, outperforming the Zacks categorized Aerospace/Defense industry’s gain of 11%. On an average, the company has delivered a positive earnings surprise of 8.29% in the trailing four quarters. This could be because Northrop restructured its business to focus on space and airborne ISR, which helped it yield significant benefits. Moreover, the company continues to witness a steady flow of contracts from the Pentagon and other international customers.
Our View
We believe that the company has significant upside potential going forward, based on the U.S. government’s heightened focus on Intelligence Surveillance Reconnaissance (ISR), unmanned systems, force protection, cyber security, and missile defense.
Meanwhile, the fiscal 2017 budget proposal reflects an annual increase of approximately $2.2 billion over the fiscal 2016 budget. The increased spending would be allocated to certain key areas that can unlock significantly higher opportunities for Northrop Grumman.
In addition to these, the victory of Donald Trump in the Presidential race bodes well for Aerospace and Defense sector companies like Northrop Grumman, Lockheed Martin Corp. (NYSE:LMT) , The Boeing Co. (NYSE:BA) and Huntington Ingalls Industries, Inc. (NYSE:HII) as it has lifted expectations of increased military spending. A moderate flow of funds from the Pentagon added to the optimism.
Zacks Rank
Northrop Grumman currently sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.
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