Northrop: E-2D for Full Production

Zacks

Northrop Grumman Corporation’s (NOC) E-2D Advanced Hawkeye has received approval from the Office of the Secretary of Defense (“OSD”) for full-rate production as the aircraft has been proved to be suitable and effective for operations. The OSD has reached this decision after a successful 10-month initial operational test and evaluation (IOT&E) conducted by the U.S. Navy.

The IOT&E is conducted by the U.S. Navy's Air Test and Evaluation Squadron One for every new system. This is a rigorous phase of testing in order to determine that the new system is operationally effective and suitable for fleet introduction. When the system clears this testing, it is allowed for full-rate production that leads to a multiyear procurement of the system.

Designed and manufactured by Northrop Grumman, the E-2D Advanced Hawkeye is the newest variant of the E-2 aircraft platform. It comprises of a high-tech radar with a two-generation leap. It also has an upgraded aircraft system that increases speed. To date, the company has delivered nine E-2Ds to the U.S. Navy on or ahead of schedule. Also, 11 additional aircrafts are in various stages of manufacturing and pre-delivery flight testing.

E-2D is a multi-mission platform. Through its ability to coordinate concurrent missions, E-2D can provide land force support, rescue operations, and manage a reliable communications network between widely dispersed nodes. Hawkeye’s new glass cockpit and tactical fourth operator display provide the five-person crew more flexibility in fulfilling the diversified nature of work. Moreover, its ability to work near the coastline as well as over land helps in protecting the nation’s interests.

The E-2D industry team is focused on providing the most capable and cost-effective airborne early warning and command and control solution to its customers. The approval would help the company in performing the contracts on schedule.

Northrop Grumman is a leading global security company providing innovative systems, products and solutions in unmanned systems, cybersecurity, Command, Control, Communications, Computers, Intelligence, Surveillance and Reconnaissance (C4ISR), and logistics and modernization to government and commercial customers worldwide.

Northrop’s product line is well positioned in high priority categories, such as defense electronics, 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, modernization of defense and homeland security assets, intelligence, surveillance and reconnaissance systems, advanced electronics and software development.

Recently, the company released fourth quarter and full year results. The company reported earnings of $2.06 per share compared with $1.85 per share in the fourth quarter of 2011. The reported figure also comfortably surpassed the Zacks Consensus Estimate of $1.74 per share. Sales for the reported quarter decreased 0.5% year over year to $6.5 billion. However, sales came in above the Zacks Consensus Estimate by $154 million.

The upbeat earnings will however be tempered by apprehension regarding defense cutbacks on high-cost platform programs, over-exposure to the DoD budget, lower backlog, cost over-runs and reductions in the Afghanistan and Iraq operations. The company presently retains a short-term Zacks Rank #3 (Hold).

Other stocks to consider are Huntington Ingalls Industries, Inc. (HII) that carries a Zacks Rank #1 (Strong Buy) and Esterline Technologies Corp. (ESL) and Lockheed Martin Corporation (LMT) with a Zacks Rank #2 (Buy).

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