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Northrop Grumman Wins $866M Radar System Modification Deal

Zacks Equity Research
Updated

Northrop Grumman Corp.’s NOC subsidiary, Northrop Grumman Systems Corp., recently secured an $866 million multiple-line item contract from the Air Force Life Cycle Management Center, Peterson Air Force Base; Colorado. Work related to the deal is scheduled to get completed by May 31, 2023.

Details of the Deal

Per the deal, Northrop Grumman will be entrusted with the duty for sustainment and modification of radar sensors, providing depot-level sustainment services and modification projects for the Ballistic Missile Early Warning systems and PAVE Phased Array Warning system radars along with the Parameter Acquisition Radar Attack Characterization system. Work related to the deal will be performed in Colorado Springs, CO and other locations across the United States.

A Brief on Northrop Grumman’s Radar System

Northrop Grumman has been a leader in providing multi-mission radar solutions from sea to outer space over the last six decades. Its Active Electronically Scanned Array (AESA) radar solutions help in providing high degree of resistance to electronic jamming techniques. Also, AESA radar solutions create high-bandwidth data links between aircraft and other equipped systems, and possess low interception capabilities from enemy radars.

What’s Favoring Northrop Grumman?

Northrop Grumman has witnessed significant radar-related success from investments made in Gallium Nitride (GaN), which further helps in amplifying radio energy for radars, jammers and other devices. Such investments should help Northrop Grumman to develop more effective and highly resistant radar solutions, in the days to come.

Northrop Grumman’s Mission Systems (MS) unit develops various sensors and processors, which represented 50% of the unit’s sales in the first quarter. Notably, this unit reported first-quarter 2018 revenues of $2.88 billion that inched up 3% year over year.

In February, President Trump revealed the fiscal 2019 defense budget proposal, which included an investment plan of $13.7 billion in matters pertaining to science and technology. Considering such favorable budgetary revisions and the U.S. government’s increased focus on cyber, command, control, communications and computers, intelligence, surveillance and reconnaissance (C4ISR) programs, we expect the company to win more such radar-related contracts in days ahead.

Price Performance

Shares of Northrop Grumman have rallied about 29.1% in a year compared with the industry’s gain of 39.5%. The underperformance may have been caused by the intense competition that the company faces in both domestic and international markets.



Zacks Rank & Key Picks    

Northrop Grumman carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same sector are AeroVironment, Inc. AVAV, The Boeing Company BA and Wesco Aircraft Holdings, Inc. WAIR.

While AeroVironment sports a Zacks Rank #1 (Strong Buy), The Boeing Company and Wesco Aircraft Holdings carry a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

AeroVironment delivered an average positive earnings surprise of 147.43% in the last four quarters. The company’s long-term growth rate is pegged at 20%.

The Boeing Company came up with an average positive earnings surprise of 29.51% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 3.98% to $14.61 in the last 90 days.

Wesco Aircraft Holdings’ long-term growth rate is pegged at 12%. The Zacks Consensus Estimate for 2018 earnings has risen by 10% to 77 cents in the last 90 days.

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