Northrop Gets Contract Modifications

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Northrop Grumman Corp. (NOC) has received two modification contracts worth $16 million from the Department of Defense (DOD).

The larger of these contracts is worth $9.3 million. Per the contract, the company will exercise the option of a previously awarded contract. The company will provide long-lead time material required to begin full-rate production of five E-2D Advanced Hawkeye Lot 2 airborne early-warning aircraft for the Navy. This contract has been converted to a fixed-price contract and is scheduled to be completed in Mar 2014.

In May this year, the company received a contract worth $113.7 million to procure long-lead materials necessary to initiate the Full Rate Production of five E-2D Advanced Hawkeye Lot 2 airborne early warning aircraft for the U.S. Navy.

Designed and manufactured by Northrop Grumman, the E-2D Advanced Hawkeye is the newest variant of the E-2 aircraft platform. It comprises a high-tech radar with a two-generation leap. It also has an upgraded aircraft system that increases speed. The Advanced Hawkeye recognizes and keeps track of wanted and unwanted aircrafts.

Per the other modification contract, worth $6.8 million, the company will make improvements to the Joint Tactical Ground Station. JTaGS is an information processing system that processes infrared data downloaded from the Space Based Infrared System (:SBIRS) and other satellites. The station targets to provide early warning of tactical ballistic missile strikes.

Northrop has a strong presence in the Air Force, Space & Cyber Security programs. Going forward, the company offers a strong program portfolio positioned to take advantage of focus areas in the defense space, an improving balance sheet and an ongoing share repurchase program.

Although Northrop like its peers faces uncertainty related to the defense budget, it seems to be immune to some extent to defense budget cuts. In fact, the President's fiscal year 2014 budget supports some of Northrop’s key programs. For 2014, the proposed budget increased funding for Northrop’s E-2D Advanced Hawkeye by 25%, while 21 EA-18G Growlers funding got a proposal for double financing in comparison to 2013. Meanwhile funding for F-35 was re-affirmed, and programs like SBIRS, Advanced EHF and the James Webb Space Telescope, Global Hawk Block 30 and Block 40 operations were sufficiently funded. Cybersecurity became a key investment area with funding increasing by more than 20% to $4.7 billion.

The company presently retains a short-term Zacks Rank #2 (Buy).

Other stocks well placed in the industry are Erickson Air-Crane Inc. (EAC), The Boeing Company (BA) and Alliant Techsystems Inc. (ATK). While Erickson Air-Crane carries a Zacks Rank #1 (Strong Buy), The Boeing Company and Alliant Techsystems hold a Zacks Rank #2 (Buy).

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