Northrop in LCS Navy Contract

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Northrop Grumman Corp. (NOC) has received a contract worth $28 million to act as a mission package integrator and provide engineering and production planning services for the Navy’s surface warfare and mine countermeasures mission module components. These module components will be deployed from and integrated into the littoral combat ship (“LCS”).

Designed by Lockheed Martin Corp. (LMT) and General Dynamics Corp. (GD), LCS is a fast, highly maneuverable, networked surface combat ship. Per the contract, Northrop Grumman will provide a specific set of subsystems such as data processing equipment and vehicles and sensors to the Navy.

As per the mission package, the company will integrate manned and unmanned systems that are capable of operating in all domains whether air, surface or subsurface. Acting as a mission package integrator, the company will continue to provide systems engineering, mission module production and mission package fleet sustainment. The package includes distance support for the currently deployed USS Freedom (LCS 1).

Northrop Grumman as a mission package integrator maintains a disciplined systems engineering process and ensures that the different components are effectively integrated into the larger LCS system.

To date, Northrop Grumman has delivered two surface warfare mission modules. Also, the company will deliver its first mine countermeasures mission module for LCS very soon. The second mine countermeasures mission module is also under production.

Northrop Grumman’s product line is well positioned in high priority categories, such as defense electronics, unmanned aircraft and missile defense. We expect revenue and earnings growth 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.

However, we remain concerned about the defense cutbacks on high-cost platform programs, over-exposure to the Department of Defense budget, cost over-runs and reductions in Afghanistan and Iraq operations. The company presently retains a short-term Zacks Rank #3 (Hold).

In the near term, we would advise investors to accumulate its short-term Zacks Rank #1 (Strong Buy) peer Erickson Air-Crane Inc. (EAC).

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