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A month has gone by since the last earnings report for Northrop Grumman (NOC). Shares have lost about 0.5% in that time frame, underperforming the S&P 500.
Will the recent negative trend continue leading up to its next earnings release, or is Northrop Grumman due for a breakout? 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 Q4 Earnings Beat, Revenues Rise Y/Y
Northrop Grumman Corporation reported fourth-quarter 2020 earnings of $6.59 per share, beating the Zacks Consensus Estimate of $5.70 by 15.6%. Reported earnings also improved 17.5% from $5.61 in the year-ago quarter.
For 2020, earnings were $23.65 per share, up 11.5% from the year-ago quarter. Moreover, 2020 earnings exceeded the Zacks Consensus Estimate of $22.72 by 4.1%.
In fourth-quarter 2020, Northrop Grumman reported total revenues of $10,212 million, surpassing the Zacks Consensus Estimate of $9,235 million by 10.6%.
Moreover, revenues increased 17% from the year-ago quarter’s $8,721 million. The year-over-year upside was primarily driven by a 24% increase in Aeronautics systems sales, 31% in Space Systems sales and 10% in Mission Systems sales.
In 2020, total revenues increased 9% year over year to $36,799 million. Full-year revenues, also exceeded the Zacks Consensus Estimate of $35,820 million by 2.7%.
Effective Jan 1, 2020, Northrop made some structural changes in its reportable segments.
Aeronautics Systems: Segment sales of $3,487 million grew 34% year over year as a result of higher sales from manned aircraft.
Operating income improved 10% to $339 million, whereas operating margin contracted 130 basis points (bps) to 9.7%.
Mission Systems: Segment sales increased 10% to $2,736 million, driven by higher sales volumes from airborne sensors and network sales; increased navigation, targeting & survivability sales; cyber & intelligence mission solutions sales and elevated maritime/land systems & sensors sales.
Operating income however declined 2% to $389 million, while operating margin contracted 170 bps to 14.2%.
Defense Systems: Sales in this segment grew 2% to $1,917 million due to lower volumes in mission readiness programs.
Operating income increased 22% to $214 million, while operating margin expanded 180 bps to 11.2%.
Space Systems: Space Systems’ fourth-quarter 2020 sales soared 31% to $2,550 million owing to higher sales from both Space and Launch & Strategic Missiles programs.
The segment’s operating income improved 17% to $258 million, whereas operating margin contracted 120 bps to 10.1%.
Total operating costs and expenses at the end of the quarter were $32,734 million, up 9.6%.
Operating income during the quarter increased 2.4% to $4,065 million.
Northrop Grumman’s cash and cash equivalents, as of Dec 31, 2020, were $4,907 million, up from $2,245 million, as of Dec 31, 2019.
Long-term debt (net of current portion), as of Dec 31, 2020, was $14,261 million, down from $12,770 million, as of 2019-end.
Net cash inflow from operating activities, as of Dec 31, 2020, was $4,305 million compared with $4,297 million, as of Dec 31, 2019.
Northrop Grumman currently expects to generate revenues of $35.1-$35.5 billion during 2021. The Zacks Consensus Estimate for revenues, pegged at $37.51 billion, is higher than the guided range.
The 2021 earnings are expected to be $23.15-$23.65 per share. The Zacks Consensus Estimate for EPS, pegged at $23.99, lies above the guided range.
How Have Estimates Been Moving Since Then?
In the past month, investors have witnessed a downward trend in estimates review.
At this time, Northrop Grumman has a great Growth Score of A, though it is lagging a lot on the Momentum Score front with a D. However, the stock was allocated a grade of A on the value side, putting it in the top quintile for this investment strategy.
Overall, the stock has an aggregate VGM Score of A. If you aren't focused on one strategy, this score is the one you should be interested in.
Estimates have been broadly trending downward for the stock, and the magnitude of these revisions indicates a downward shift. Notably, Northrop Grumman has a Zacks Rank #3 (Hold). We expect an in-line return from the stock in the next few months.
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