Northrop (NOC) Wins $329M Deal To Upgrade Minuteman Missile

Northrop Grumman Corporation (NYSE:NOC) announced that it has secured a $329 million contract from the U.S. Air Force, for the Ground-based Strategic Deterrent.

Details of the Contract

Per the contract, the company will work toward replacement of aging Minuteman III which will lower the associated technical risk in the missile to meet intercontinental ballistic missiles operational requirements. Northrop Grumman is expected to finish the work by Aug 20, 2020. All work related to this contract will be primarily carried out at the Redondo Beach, CA facility along with various other locations.

Meanwhile, the Air Force has awarded a similar deal worth $349 million to The Boeing Company (NYSE:BA) for Ground-based Strategic Deterrent.

According to Reuters, Lockheed Martin Corporation (NYSE:LMT) was another competitor who bid for the contract. However, Pentagon decided to go with the first two, for now.

About Minuteman III

Boeing’s Minuteman series of missiles are land-based intercontinental ballistic missile (ICBM) in service with the U.S. Air Force Global Strike Command. The first range of Minuteman missiles entered the service in the early 1960s and has evolved with time since its initiation. These weapon systems have been known to provide quick-reacting, inertially guided, highly survivable component to the country’s strategic deterrent program.

The Need of the Hour

With rising threats from North Korea along with expansion of global terrorism, it has become extremely important for the U.S. to keep its defense weaponries updated.

The proposed budget hike for fiscal 2018 by President Trump reflected a 10% increase over the current base budget level of the current year, hinting at the U.S. government to spend more on defense. More recently, the U.S. House of Representatives passed the 2018 defense policy bill, reflecting an expenditure level of $696 billion. It exceeded President Trump’s defense budget request proposed this March. If enacted, all these budgetary updates will immensely boost the business growth of all defense giants including Northrop Grumman.

Notably, Northrop Grumman has developed into one of the largest domestic defense contractor in terms of revenue, with a major platform-centric focus. The company has a strong presence in Air Force, Space & Cyber Security programs which have aided it in securing regular contracts from the different verticals of U.S. Defense. We believe the recently won deal is an example of that and will boost the company’s growth trajectory, going ahead.

Price Movement

Shares of Northrop Grumman have returned 24.8% in the last one year compared to the industry’s increase of 34.6% in the same time period.

This might have been led by the company’s escalating operating expenses, while steep competition from peers also remains a major concern.

Zacks Rank and Other Stock to Consider

Northrop Grumman carries a Zacks Rank #2 (Buy). Another stock in the same space is Huntington Ingalls Industries, Inc. (NYSE:HII) , also carrying a Zacks rank #2. You can see the complete list of today's Zacks #1 Rank (Strong Buy) stocks here.

Huntington Ingalls delivered a positive surprise of 22.52% in the second quarter of 2017. The company’s 2017 Zacks Consensus Estimate has increased 2.6% to $11.54 in the last 30 days.

Zacks' 10-Minute Stock-Picking Secret

Since 1988, the Zacks system has more than doubled the S&P 500 with an average gain of +25% per year. With compounding, rebalancing, and exclusive of fees, it can turn thousands into millions of dollars.

But here's something even more remarkable: You can master this proven system without going to a single class or seminar. And then you can apply it to your portfolio in as little as 10 minutes a month.

Learn the secret >>