Northrop Grumman (NOC) Wins $172M Air Force Deal For BACN

Northrop Grumman Corp. (NYSE:NOC) recently secured a contract for Battle Field Airborne Communication Node (BACN). Work related to the deal will be
executed in San Diego, CA, along with other overseas locations and is expected to be over by Jan 23, 2019.

Details of the Deal

Per the deal, Northrop Grumman will provide BACN payload operations and support for payload equipment and services.

Valued at $172.7 million, the contract was awarded by the Air Force Life Cycle Management Center's Space, Hanscom Air Force Base, Massachusetts.

Northrop Grumman will utilize fiscal 2018 overseas contingency operation and maintenance funds to finance the work.

A Brief Note on BACN

Northrop Grumman’s BACN facilitates persistent communication ranging from small ground units to the highest command levels in battlefield. BACN, combined with the company’s Global Hawk unmanned surveillance aircraft, provides fighters with essential information. The system operates on four E-11As modified Bombardier BD-700 Global aircraft and three high-altitude drones.

The BACN is an airborne communications relay and gateway system that bridges the gap between theater operations, mountainous terrain inhibited
line-of-sight communications; diverse weapon systems, enabling essential situational awareness from small ground units in contact up to the highest command levels.

Our View

We believe that Northrop Grumman has significant upside potential based on the U.S. government’s increased focus on Intelligence Surveillance
Reconnaissance (ISR), airborne communication systems, force protection and cyber security.

Apart from providing a broad array of products and services to the U.S. Department of Defense, including defense electronics, unmanned aircraft
and missile defense, Northrop Grumman’s Mission Systems business segment includes the BACN program.

During the third quarter of 2017, the company’s Mission Systems segment sales increased 5.2% to $2.84 billion. For 2017, the company marginally
raised its sales outlook for this segment on anticipation of solid order growth. Going ahead, we expect the latest contract win to positively
impact this segment’s top line in 2018 as well.

In September 2017, the approval of the fiscal 2018 defense policy bill, worth $700 billion, by the U.S. Senate provided a boost to the defense industry. We believe the raised budget will draw more contracts for defense majors like Northrop Grumman and also help the company acquire contracts related to airborne communications. The latest contract win from the Pentagon is reflective of the same.

Price Movement

Northrop Grumman’s stock has moved up about 36.9% in a year, compared with the broader industry’s gain of 53.8%. The underperformance may have been caused by intense competition for its broad portfolio of products and services in the domestic and international markets.

Zacks Rank & Other Key Picks

Northrop Grumman carries a Zacks Rank #2 (Buy).

A few other top-ranked stocks from the same sector are Aerojet Rocketdyne Holdings, Inc. (NYSE:AJRD) , sporting a Zacks Rank #1 (Strong Buy), and Curtiss-Wright Corporation (NYSE:CW) and Spirit Aerosystems Holdings, Inc. (NYSE:SPR) , each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

Aerojet Rocketdyne posted an average positive earnings surprise of 19.27% over the last four quarters. The Zacks Consensus Estimate for 2018 earnings moved up 20 cents over the past 90 days.

Curtiss-Wright posted an average positive earnings surprise of 11.78% in the past four quarters. The Zacks Consensus Estimate for 2018 earnings
rose by 24 cents over the last 90 days.

Spirit Aerosystems has an average positive earnings surprise of 4.52% for the past four quarters. The Zacks Consensus Estimate for 2018 earnings
has risen by 24 cents in the last 90 days.

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