Northrop Grumman's Unit Wins $210M Deal To Support LAIRCM

Northrop Grumman Corp.’s (NYSE:NOC) business unit, Northrop Grumman Systems Corp., recently secured a modification contract for providing Large Aircraft Infrared Counter Measures (LAIRCM) equipment and support. Work related to the deal is scheduled to be over by Apr 30, 2020.

Details of the Deal

Valued at $209.7 million, the contract was awarded by the Air Force Life Cycle Management Center, Wright Patterson Air Force Base, Ohio. Per the terms, this modification will take the total cumulative face value of the deal to $1.6 billion.

A minor portion of the agreement includes foreign military sales LAIRCM acquisitions to South Korea. Notably, the funds for fiscal 2016, 2017 and 2018 aircraft procurement, National Guard, Navy as well as operations and maintenance will be utilized to finance the task. The project will be executed in Rolling Meadows, IL.

What’s LAIRCM?

The LAIRCM system is essential and critical for the safety of onboard troops in a hostile situation. It is an active countermeasure that can automatically detect a missile launch. On identifying a missile, LAIRCM determines if it is a threat and activates a high-intensity, laser-based countermeasure system to track and destroy the missile on its own, with no action required by the crew. The primary purpose of the LAIRCM program is to protect large aircraft from man-portable missiles.

Why Northrop Grumman?

Of late, terrorist groups have been increasingly using cheap yet deadly man-portable missiles. Thus, an effective anti-missile solution for the protection against such threats is the need of the hour and a well-equipped, developed nation like the U.S. will always want to be well prepared for any sudden assault.

Moreover, throughout 2017, repeated missile threats from North Korea have forced the United States to ramp up its focus toward its missile defense space. Undoubtedly, this has led the Trump administration to multiply its arsenal treasury, both in terms of attacking missiles as well as accumulating protective measures like LAIRCM.

Currently, Northrop Grumman’s AN/AAQ-24(V) Directional Infrared Countermeasure (DIRCM) system is the only DIRCM system in production that can protect an aircraft from infrared-guided missiles. LAIRCM is one variant of such a DIRCM.Considering the present situation in the nation and Northrop’s combat-proven LAIRCM, more contracts like the latest one can be expected to boost the company’s sales.

Meanwhile, on Feb 12, 2018, the Pentagon unveiled the fiscal 2019 budget proposal. This financial plan provisions spending of $716 billion on national security, including funds of $686.1 billion for the Pentagon. It includes $617.1 billion as base budget, highlighting a 17.8% increase from the current continuing resolution level. Being one of the largest aerospace-defense players in 2017, we expect Northrop Grumman to benefit from the budget reflecting increased spending provision for the country’s defense.

Price Performance

Shares of Northrop Grumman have rallied about 44.8% in a year compared with the broader industry’s gain of 47.3%. The underperformance might have been caused by intense competition that the company faces in both domestic and international markets.

Zacks Rank & Other Stocks to Consider

Northrop Grumman carries a Zacks Rank #2 (Buy). A few better or similar-ranked stocks in the same space are Huntington Ingalls (NYSE:HII) , Boeing (NYSE:BA) and Wesco Aircraft Holdings (NYSE:WAIR) . While Huntington Ingalls sport a Zacks Rank #1 (Strong Buy), Boeing and Wesco Aircraft carry the same bullish rank as Northrop Grumman. You can see the complete list of today’s Zacks #1 Rank stocks here.

Huntington Ingalls delivered an average positive earnings surprise of 3.85% in the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings has moved north by 30.2% in the past 60 days.

Boeing pulled off an average positive earnings surprise of 20.69% in the past four quarters. The Zacks Consensus Estimate for 2018 earnings inched up 0.9% over the last 60 days.

Wesco Aircraft delivered a positive earnings surprise of 25% in the previous quarter. The Zacks Consensus Estimate for 2018 earnings climbed 9.4% over the last 60 days.

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