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Northrop Grumman (NOC) Up 8.2% Since Earnings Report: Can It Continue?

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A month has gone by since the last earnings report for Northrop Grumman Corporation NOC. Shares have added about 8.2% in that time frame, outperforming the market.

Will the recent positive trend continue leading up to its next earnings release, or is NOC due for a pullback? Before we dive into how investors and analysts have reacted as of late, let's take a quick look at the most recent earnings report in order to get a better handle on the important catalysts.

Northrop Grumman Beats Q4 Earnings & Revenue Estimates

Northrop Grumman reported fourth-quarter 2017 earnings of $2.82 per share, beating the Zacks Consensus Estimate of $2.75 by 2.5%.

Reported earnings were $1.01, down nearly 65.9% from $2.96 recorded in the year-ago quarter. The decline was primarily due to higher tax expenses resulting from the enactment of the Tax Cuts and Jobs Act.

Total Revenues

In fourth-quarter 2017, Northrop Grumman reported total revenues of $6.63 billion, beating the Zacks Consensus Estimate of $6.37 billion by 4.1%.

Revenues also increased 3.7% from the year-ago figure of $6.39 billion. The revenue upside was primarily driven by increase in Aerospace Systems and Mission Systems sales.

Segmental Details

Aerospace Systems: Segment sales of $3 billion increased 5% year over year due to growth in Manned Aircraft and Autonomous Systems, partially offset by lower Space sales.

However, Operating income was down 9% year over year to $298 million.

Mission Systems: Segment sales increased 6% to $3.02 billion due to higher volume for Sensors and Processing and Advanced Capabilities programs.

Operating income dropped 6.9% to $363 million while operating margin contracted 170 basis points (bps) to 12.0%.

Technology Services: Sales at the segment dipped 0.8% to $1.19 billion, driven by lower sales volume for System Modernization and Advance Defense Services programs.

Operating income increased 0.8% to $126 million while operating margin expanded 20 bps to 10.5%.

Operational Update

Total operating cost and expenses in 2017 increased 5.6% to $22.5 billion.

Operating income in 2017 increased 3.3% year over year to $3.3 billion.

Total backlog at the end of 2017 was $42.9 billion, down 5.5% from the year-ago period primarily due to year-over-year decline in Aerospace Systems and Technology Services.

Financial Condition

Northrop Grumman’s cash and cash equivalents as of Dec 31, 2017 were $12.2 billion, up from $2.54 billion as of Dec 31, 2016.

Long-term debt (net of current portion) as of Dec 31, 2017, was $14.4 billion, up from $7.06 billion as of 2016 end.

Net cash flow from operating activities at the end of 2017 was $2.61 billion compared with the year-ago figure of $2.81 billion.

Looking Ahead

Northrop Grumman expects to generate total revenues in excess of $27 billion in 2018. The company expects free cash flow in the range of $2 billion to $2.3 billion in 2018. The 2018 earnings are expected to be in the range of $15 to $15.25 per share.

How Have Estimates Been Moving Since Then?

In the past month, investors have witnessed an upward trend in fresh estimates. There has been one revision higher for the current quarter. While looking back an additional 30 days, we can see even more upward momentum. There have been three moves higher compared to one lower two months ago.

Northrop Grumman Corporation Price and Consensus

 

Northrop Grumman Corporation Price and Consensus | Northrop Grumman Corporation Quote

VGM Scores

At this time, NOC has a nice Growth Score of B, however its Momentum is doing a bit better with an A. However, the stock was allocated a grade of C on the value side, putting it in the middle 20% for this investment strategy.

Overall, the stock has an aggregate VGM Score of B. If you aren't focused on one strategy, this score is the one you should be interested in.

Based on our scores, the stock is primarily suitable for momentum investors while also being suitable for those looking for growth and to a lesser degree value.

Outlook

Estimates have been trending upward for the stock and the magnitude of this revision looks promising. Notably, NOC has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.


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