Shares of Northrop Grumman Corp. (NOC) hit a new 52-week high of $126.00 on April 4, eventually closing at $120.69. This Zacks Rank #2 (Buy) company has delivered a year-to-date return of about 5.3%, outperforming the S&P return of 0.91%. With a market cap of $26.16 billion, the defense major has a one-year return of 68.7%, higher than the S&P 500 return of 20.1%.
Investors were encouraged by the stock’s performance as Northrop successfully beat the Zacks Consensus Estimate on both the top and the bottom line in the fourth quarter of 2013. The earnings beat was attributable to a lower share count and strong operating performance. However, the bottom line came in below the year-ago figure by 2.9% mainly due to lower revenue generation.
Although the threat of sequestration still lurks over the major defense biggies, the combination of small as well as big contracts at regular intervals ensures a steady revenue stream.
In fact, Northrop has delivered a positive earnings surprise of about 3.8% on an average over the last 4 quarters. The company also has a long-term earnings growth expectation of 7.7% and trades at a forward P/E of 13.5x. Average volume of shares traded over the last 3 months stands at approximately 1,441.8K.
While the budget environment continues to be shifting, the company’s focus on operational performance, effective cash deployment and portfolio alignment will help it to remain well positioned. Foreign sales are also expected to play a vital role. The company’s international sales increased 20% in 2013 to $2.5 billion and will likely represent 13% of revenues in 2014. This could trigger 20%–25% annualized growth in international sales in 2014, considering the mid point of the company’s guided range.
Northrop Grumman’s strong balance sheet and cash flows provide substantial financial flexibility and a cushion for an incremental dividend, ongoing share repurchases and earnings accretive acquisitions. The company pays an annual dividend of $2.44 per share that calls for a dividend yield of 2.02% with respect to the current market price.
In a nutshell, a steady flow of contracts, which also include substantial international orders, a funded backlog of $22.5 billion as of Dec 31, 2013, the introduction of new products, and the commitment to return wealth to its shareholders make this stock attractive.
Other well-placed players in the aerospace and defense industry include Huntington Ingalls Industries, Inc. (HII), Wesco Aircraft Holdings, Inc. (WAIR) and Embraer SA (ERJ). Huntington Ingalls and Wesco Aircraft carry a Zacks Rank #1 (Strong Buy) while Embraer holds a Zacks Rank #2 (Buy).
Read the Full Research Report on ERJ
Read the Full Research Report on HII
Read the Full Research Report on WAIR
Zacks Investment Research
- Personal Investing Ideas & Strategies