Northrop Grumman's B-21 uncertainty 'may cap valuation upside'

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Northrop Grumman's B-21 uncertainty 'may cap valuation upside' - Cowen

Stock Markets Jan 27, 2023 10:55AM ET

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Northrop Grumman's B-21 uncertainty 'may cap valuation upside' - Cowen

NOC

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By Vlad Schepkov

Cowen analysts downgraded Northrop Grumman (NYSE:NOC) to a "Market Perform" rating from "Outperform" and lowered the Price Target on shares to $478 from $500, citing the "extended overhang" on the company's profitability from its B-21 stealth bomber program.

The aerospace giant recently revealed that 'it is "reasonably possible" but not probable that it could see a loss "between $0 to $1.2B" across the five B-21 LRIP (Low Rate Initial Production) options.'

NOC notes that the execution on what is one of its flagship programs "has been good," and blames the problem on inflation and current supply chain disruptions.

Nonetheless, the analysts see the revelation as "an extended overhang to what's been the sector's cleanest growth story."

They highlight that Northrop Grumman's fundamentals are "otherwise healthy" and see "continuing strong support for defense spending", but now believe "B-21 uncertainty may cap NOC's valuation upside."

Based on the above, Cowen downgrades the stock to a "Market Perform" rating and lowers the Price Target (NYSE:TGT) to $478.

Shares of NOC are currently trading just above $438, and are down nearly 19% YTD.

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