Northrop Grumman Corporation (NOC) has received a series of follow-on contracts from the Japanese Maritime Self-Defense Force or JMSDF to provide three additional AQS-24A airborne mine hunting systems.
The contracts, which also include airborne electronics and ground-based support equipment, come on the heels of an initial contract awarded in October last year to Northrop Grumman to deliver Japan's first AQS-24A. The Japanese Maritime Self-Defense Force will use all four complete AQS-24A airborne mine hunting sonar systems on its new MCH-101 helicopters.
Northrop Grumman said that the contract award marks the completion of a technology transition with Japan, which allows for certain components of the airborne electronics to be manufactured in Japan.
The equipment support effort represents the initial establishment of in-country support capability and infrastructure for the AQS-24A, which will eventually enable the JMSDF to provide complete logistical support for the AQS-24A systems. Follow-on contracts for additional systems, electronics and support equipment are expected in 2013 and will continue until the JMSDF reaches its full operational inventory objective.
Northrop Grumman is one of the largest defense contractors in the U.S. The company supplies a broad array of products and services to the U.S. Department of Defense (DoD), including electronic systems, information technology, aircraft, space technology and systems integration services. The positive case for Northrop Grumman stems from revenue growth across the board and a broad diversification of programs.
Northrop Grumman 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. Also, its product line in high priority categories, such as defense electronics, unmanned aircraft and missile defense, gives Northrop Grumman an edge over competition.
The company’s backlog is expected to see further upside in the near future through unmanned aerial vehicle (:UAV) platforms, including Broad Area Maritime Surveillance (:BAMS), Fire Scout and Navy Unmanned Combat Air System (:UCA). Thus, the quantitative Zacks #2 Rank (short-term Buy rating) for the company indicates upward directional pressure on the shares over the near term.
However, these are offset by apprehension regarding defense cutbacks on high-cost platform programs, over-exposure to the DoD budget, lower backlog, cost overruns and reductions in Afghanistan and Iraq operations.
We maintain our long-term Neutral recommendation on Northrop Grumman. This is in line with its peers like General Dynamics Corporation (GD) and Lockheed Martin Corporation (LMT).
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