Zacks_Analysts' Blog : Contracts Flowing in for Northrop - Analyst Blog

Northrop Grumman Corporation (NOC) has received a contract worth $103 million from the U.S. Department of Defense (DOD) under which it will provide support to the Mission Command Training Support Program (“MCTSP”) of the National Guard Bureau Mission Training Complexes (“MTC”) at Fort Leavenworth, Kansas, Camp Dodge, Iowa, and Fort Indiantown Gap, Pennsylvania.

The purpose of MTC is to provide individual and collective training support with the help of live, virtual, and serious gaming; constructive and individual learning environments; and mobile training solutions.

The company is well experienced in mission rehearsal training and has been providing its assistance across multiple DoD and joint programs for more than 20 years. Per the three-year contract that has one base year and two option years, the company will assist mission command systems in training and mission rehearsal.

In another $19 million deal with the U.S. Naval Supply Systems Command (“NAVSUP”), the company will repair avionics equipment on the SH-60 Seahawk helicopter and the EA-6B Prowler jet. Per the five-year, fixed-price contract, the company will be responsible for repair of ASN-150 and ASN-123 tactical navigation and tactical data systems on the SH-60 and EA-6B aircraft. 

The SH-60 Seahawk helicopter is manufactured by Sikorsky Aircraft Corporation, a subsidiary of United Technologies Corporation (UTX). The helicopter is able to deploy aboard cruisers, destroyers, amphibious assault ships, frigates and other air-capable platforms that can effectively carry out anti-submarine missions.  EA-6B Prowler is a long-range, all-weather aircraft that has advanced electronic countermeasures capability and is manufactured by Northrop itself.

Northrop Grumman is a leading global security company providing innovative systems, products and solutions in aerospace, electronics, information systems, and technical services to government and commercial customers worldwide. The company offers a strong program portfolio positioned to take advantage of focus areas in the defense space, an improving balance sheet and an ongoing share repurchase program.

Recently, Northrop Grumman Corporation reported impressive fourth quarter 2011 results of $1.85 per share compared with $1.51 in the fourth quarter of 2010. Northrop results also exceeded the Zacks Consensus Estimate of $1.68 for the quarter.

Sales for the reported quarter decreased 6% to $6.5 billion, from $6.9 billion in the year-ago quarter, and were 2.9% lower than the Zacks Consensus Estimate of $6.7 billion.

Overall, we are concernedabout defense cutbacks on high-cost platform programs,over-exposure to the DoD budget, and cost over-runs. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.