On May 8, 2013, the shares of Northrop Grumman Corp. (NOC) climbed to a 52-week high of $77.82 primarily driven by strong results in the first quarter of 2013. The company’s top and bottom line surpassed the Zacks Consensus Estimates primarily due to robust operating performance as well as a lower share count.
Operational efficiency, a large number of contracts, solid liquidity position and effective cash deployment strategy have led Northrop Grumman’s share to attain this high. The company’s total backlog at the end of first-quarter 2013 was $39.4 billion.
Northrop Grumman’s full-year 2013 earnings per share guidance is in the range of $6.85 - $7.15. The Zacks Consensus Estimates for full-year 2013 is $7.16, a penny higher than the upper limit of the guidance.
During first-quarter 2013, Northrop Grumman’s cash provided by continuing operations was $1 million compared with cash used in continuing operations of $105 million in the year-ago quarter. In addition, cash and cash equivalents as of Mar 31, 2013 were $3.2 billion.
Northrop Grumman’s strong liquidity allows it to improve shareholders’ value through regular dividend payments and share buyback. In May 2012, the company increased its annual dividend to $2.20 per share for the ninth consecutive time. Northrop Grumman’s practice of raising dividends from time to time will benefit the stock as it attracts investor attention. In addition, the company repurchased 6.5 million shares of its common stock worth $456 million during the first quarter. Currently, Northrop Grumman has share repurchase authorization of $1 billion.
The present valuation also makes Northrop Grumman attractive. Shares of the company currently trade at 10.3x 12-month forward earnings, a 26% discount to the peer group average of 13.9x. Northrop Grumman’s price-to-book ratio of 1.9 is at a 48.6% discount to the peer group average of 3.7.
Northrop Grumman currently has a Zacks Rank #2 (Buy). Apart from Northrop Grumman, other stocks in the sector that are worth considering include Astronics Corporation (ATRO) with a Zacks Rank #1 (Strong Buy), and Huntington Ingalls Industries, Inc. (HII) and Wesco Aircraft Holdings, Inc. (WAIR) with a Zacks Rank #2 (Buy).
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