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Northrop (NOC) to Repurchase $500M Shares Under ASR Agreement

Northrop Grumman Corporation NOC recently announced an accelerated share repurchase (ASR) agreement with the Bank of America. Per the agreement, the company aims to repurchase $500 million of the common stock.

The agreement is part of Northrop’s intent to return 100% of its free cash flow to shareholders through dividends and share repurchases in 2023, signifying business strength and the ability to continue generating profits and return excess cash to shareholders. NOC expects to complete the transaction by the second quarter of 2023.

Can NOC Continue to Boost Shareholder Return?

Northrop’s commitment to returning 100% of its free cash flow to shareholders is backed by the consistent order inflow, a strong backlog, rising product demand and its ability to deliver products that address an increasingly complex security environment.

These factors boost the company’s cash flow generation capacity, thus enabling it to bolster shareholder return. In this context, it is imperative to mention that NOC’s backlog at the end of 2022 increased 4% from 2021, reflecting the company’s capability to steadily perform and generate cash.

Additionally, Northrop’s bottom line improved 25% year over year, while its sales increased by 16% year over year in the fourth quarter of 2022, signifying increased profitability and higher demand for products. This enables the company to cheer investors with increased dividends and share repurchases.

The company increased its dividend by 10% in 2022, which was the 19th consecutive increase. NOC delivered more than $1 billion to shareholders through dividends and returned another $1.5 billion through share repurchases.

Going forward, Northrop expects sales in the range of $38-$38.4 billion in 2023, suggesting about 4.5% growth from the 2022 reported figure at the midpoint. Adjusted earnings are projected in the range of $21.85-$22.45 per share.

The company expects adjusted free cash flow in the range of $1.85-$2.15 billion in 2023. This implies an increase of 25% from the 2022 reported figure at the midpoint.

Moreover, NOC’s capital deployment plan supports its business strategy. In 2022, the company invested more than 7% of revenues in Research & Development and capital expenditures to enhance the capability and capacity of its products, capitalizing on the growing demand through improvised products and augmenting its earnings prospects and the ability to generate excess cash.

Backed by such business strength and financial stability, one may expect Northrop to continue to bolster shareholder returns. Moreover, the recent increase in defense spending by the U.S. government and its allies may provide an edge to the company to amplify its returns and shareholder return.

Peer Moves

Defense companies that have enhanced their share repurchase program or increased dividends for shareholders to show financial strength are as follows:

Lockheed Martin LMT delivered approximately $11 billion to shareholders in 2022 through share repurchases of $7.9 billion and paid out dividends of $3 billion. In the fourth quarter, the company entered into a $4 billion accelerated share repurchase program and retired approximately seven million shares under the agreement.

The long-term earnings growth rate of LMT is pegged at 6.9%. Shares of Lockheed Martin have increased 19.2% in the past year.

In December 2022, Raytheon Technologies RTX authorized the repurchase of up to $6 billion of the outstanding common stock. The new authorization replaces the company's previous program.

RTX has a long-term earnings growth rate of 8.3%. Raytheon’s shares have delivered 19.2% in the past year.

In October 2022, L3Harris Technologies, Inc. LHX declared a quarterly cash dividend of $1.12 per share on the common stock and approved an additional $3 billion share repurchase authorization, bringing the total current authorization to $4.5 billion.

L3Harris’ long-term earnings growth rate is 2.7%. Shares of LHX have improved 2.5% in the past month.

Price Movement

In the past year, shares of Northrop Grumman have soared 19.2% against the industry’s decline of 7%.

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Zacks Rank

Northrop Grumman currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Lockheed Martin Corporation (LMT) : Free Stock Analysis Report

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