Zacks_Analysts' Blog : Northrop Gets Navy Contract - Analyst Blog

Northrop Grumman Corporation (NOC) was awarded a $175 million cost-plus-fixed fee contract by the U.S. Navy for procurement of long-lead materials in advance and taking charge of performance of engineering/planning efforts for Landing Helicopter Assault ship named LHA 7. It is the second in the Navy's newest class of large-deck amphibious assault ships. Northrop Grumman estimates the contract value with all contract options exercised, to reach $193 million.

 

Northrop Grumman through the contract will purchase long-lead time materials and major equipment, such as the main reduction gears, in support of the new ship and to perform initial design and planning. The work will be carried out at the company's Gulf Coast facilities.

 

The new Landing Helicopter Assault ship will have an extended hangar deck with two higher hangar bay areas, each fitted with an overhead crane for aircraft maintenance. The ship will also provide increased aviation fuel capacity, stowage for aviation parts and support equipment. In addition, the ship can also carry and launch Lockheed Martin Corporation’s (LMT) F-35B Lightning II Strike Fighter and Boeing Company’s (BA) MV-22 Osprey tilt-rotor aircraft, apart from other cargo and attack helicopters.

 

Based in Los Angeles, California, Northrop Grumman provides products, services and solutions in information and services, aerospace, electronics and shipbuilding to the military, government and commercial customers in the United States and beyond.

 

Northrop Grumman’s success in the competitive defense industry depends upon its ability to develop and market its defense-related products and services to the U.S. government, as well as its ability to deliver those products and services at the maximum efficiency.

 

We believe that Northrop Grumman is fundamentally a sound company and has a strong market position, but we are cautious about the near-term bumps. The company currently is trading at a discount to both the peer group and the S&P 500, based on forward earnings estimates.

 

The positive stand for Northrop Grumman stems from revenue growth across the board, broad diversification of programs, strong order bookings and an order backlog of $67.5 billion at the end of first quarter 2010.

 

Northrop’s product line is well positioned in high priority categories, such as defense electronics, next-generation ships, unmanned aircraft and missile defense. Revenue and earnings growth continue to be driven by its strong presence in the current focus areas of cyber security, intelligence, surveillance and reconnaissance.

 

However, we believe all the above positives have already been taken into account. Thus, in the near term, we maintain our Hold recommendation on the Zacks Rank #3 stock.