On Monday, TD Cowen adjusted its outlook on shares of Northrop Grumman (NYSE:NOC), increasing the price target to $515 from the previous $440, while maintaining a Hold rating on the stock. The adjustment follows Northrop Grumman's strong performance in the second quarter, which surpassed expectations and led to an improved financial forecast.
The aerospace and defense company reported robust earnings, with an estimated sales growth of around 5% for the years 2025-26 and rising profit margins. Northrop Grumman's valuation was noted with a 16.6x 2024 Total Enterprise Value to Earnings before Interest, Taxes, Depreciation, Amortization, and Pension (TEV/EBITDAP) multiple.
The analyst from TD Cowen highlighted comparative aspects with Lockheed Martin (NYSE:NYSE:LMT), pointing out that although both companies had a solid quarter, Lockheed Martin benefits from a greater percentage of sales from Foreign Military Sales (FMS), more conservative estimates for the coming years, and a stronger cash flow yield.
Specifically, Lockheed Martin enjoys a 26% FMS tailwind compared to Northrop Grumman's 13%, and a cash flow yield of 5.0% against Northrop Grumman's 3.4%.
Despite the positive outlook for Northrop Grumman, the analyst expressed a preference for Lockheed Martin, which holds a Buy rating and a price target of $524.
The assessment reflects a detailed comparison of the two companies' financial health and market positions, suggesting that while Northrop Grumman is on a positive trajectory, Lockheed Martin may offer a more appealing investment profile based on the metrics evaluated.
In other recent news, Northrop Grumman reported a solid second-quarter performance for fiscal year 2024, with a 7% rise in sales and a 13% increase in operating income year-over-year. The robust results led the company to raise its revenue and EPS guidance for the year. Following these developments, Deutsche Bank upgraded Northrop Grumman's stock from Hold to Buy and raised the price target to $575, citing the company's improved outlook for the profitability of its B-21 units.
RBC Capital Markets also adjusted its outlook on Northrop Grumman, raising the price target to $500 while maintaining a Sector Perform rating. The firm's analysis suggested that the current stock price already accounts for the anticipated growth in free cash flow, despite potential uncertainties surrounding defense spending.
However, Baird cut its price target for Northrop Grumman from $505 to $471, while retaining a Neutral rating. The firm noted that peak development phase and the cost-plus contract structure might limit the company's near-term margin growth, despite the company's prime position on top-priority Department of Defense programs.
InvestingPro Insights
Northrop Grumman's recent market performance and financial metrics offer a nuanced picture for investors. With a market capitalization of $69.83 billion and a P/E ratio standing at 31.48, the company shows a substantial valuation in the Aerospace & Defense industry. The P/E ratio has seen a slight increase to 31.73 over the last twelve months as of Q2 2024, indicating a stable but high earnings multiple which aligns with TD Cowen's valuation note on the company.
InvestingPro Tips highlight Northrop Grumman's impressive track record of raising its dividend for 20 consecutive years and maintaining dividend payments for 54 consecutive years, with a recent dividend yield of 1.72%. This consistency in rewarding shareholders is a testament to the company's financial health and commitment to returning value. Additionally, the stock's low price volatility and the notable return of 9.63% over the last week may attract investors looking for stable yet profitable opportunities.
For those interested in a deeper analysis, InvestingPro offers additional insights and metrics on Northrop Grumman. There are 11 more InvestingPro Tips available, which can provide a more comprehensive understanding of the company's performance and potential. Use coupon code PRONEWS24 to get up to 10% off a yearly Pro and a yearly or biyearly Pro+ subscription to access these valuable tips and make informed investment decisions.
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