DoD Contracts Drive Northrop Shares

Zacks

Shares of aerospace and defense operator Northrop Grumman Corp. (NOC) moved up, thanks to the shower of orders from the U.S. Department of Defense (DoD). The shares of Northrop ended at $96.37 yesterday gaining 0.7% in a day.

On Sep 25, the DoD announced 64 separate contracts adding up to $3.51 billion. Northrop with its wide product portfolio was able to clinch four contracts, worth $190 million.

The value of the contracts ranged from $24.1 million to overhaul seven different Tailpipe components on Air Force B-2 stealth bombers by Sep 30, 2017 to an $85.3 million contract to support U.S. Army Small Tactical Radar -- Lightweight (STARLite), Synthetic Aperture Radar/Ground Moving Target Indicator (SAR/GMTI) systems.

The other two contracts consisted of a $40.4 million contract to pay for all logistics support activities needed to support RQ-4 Global Hawk drones and their subsystems in the field and a $40 million contract to perform engineering services on T-38 Talon trainer jets and F-5 fighter aircraft for the U.S. Air Force through Sep 27, 2018.

The DoD contracts are indeed the bread and butter of the U.S. defense operators. Practically, most of the revenues for the defense primes come from government contracts. Incidentally, the U.S. defense budget is the biggest across the globe.

On Sep 26, the DoD once again awarded 86 separate contracts adding up to $7.55 billion. Northrop received three contracts worth $33 million.

Despite the flow of orders, these operators are faced with the scissor in the defense budget under the ongoing sequester. This can likely dry up big-ticket items and even lead to program cancellations. Thus, the operators are on the lookout for new markets. Stepped-up defense spending in the Middle East and other Asian countries will keep their revenue stream alive.

Northrop currently has a Zacks Rank #2 (Buy). Other defense stocks performing well, with a comparable Zacks Rank of 2, are Lockheed Martin Corp. (LMT), Raytheon Co. (RTN) and L-3 Communications Holdings Inc. (LLL ).

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