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Northrop Grumman (NOC) Hits 52-Week High, Can the Run Continue?

Zacks Equity Research

Have you been paying attention to shares of Northrop Grumman (NOC)? Shares have been on the move with the stock up 11.5% over the past month. The stock hit a new 52-week high of $363.41 in the previous session. Northrop Grumman has gained 47.6% since the start of the year compared to the 24.2% move for the Zacks Aerospace sector and the 21.2% return for the Zacks Aerospace - Defense industry.

What's Driving the Outperformance?

The stock has an impressive record of positive earnings surprises, as it hasn't missed our earnings consensus estimate in any of the last four quarters. In its last earnings report on July 24, 2019, Northrop Grumman reported EPS of $5.06 versus consensus estimate of $4.64 while it beat the consensus revenue estimate by 0.66%.

For the current fiscal year, Northrop Grumman is expected to post earnings of $19.59 per share on $34.01 billion in revenues. This represents a -8.16% change in EPS on a 13.01% change in revenues. For the next fiscal year, the company is expected to earn $22.27 per share on $36 billion in revenues. This represents a year-over-year change of 13.67% and 5.85%, respectively.

Valuation Metrics

Northrop Grumman may be at a 52-week high right now, but what might the future hold for the stock? A key aspect of this question is taking a look at valuation metrics in order to determine if the company has run ahead of itself.

On this front, we can look at the Zacks Style Scores, as they provide investors with an additional way to sort through stocks (beyond looking at the Zacks Rank of a security). These styles are represented by grades running from A to F in the categories of Value, Growth, and Momentum, while there is a combined VGM Score as well. The idea behind the style scores is to help investors pick the most appropriate Zacks Rank stocks based on their individual investment style.

Northrop Grumman has a Value Score of B. The stock's Growth and Momentum Scores are A and D, respectively, giving the company a VGM Score of A.

In terms of its value breakdown, the stock currently trades at 18.5X current fiscal year EPS estimates. On a trailing cash flow basis, the stock currently trades at 13.6X versus its peer group's average of 13.5X. Additionally, the stock has a PEG ratio of 1.48. This isn't enough to put the company in the top echelon of all stocks we cover from a value perspective.

Zacks Rank

We also need to consider the stock's Zacks Rank, as this supersedes any trend on the style score front. Fortunately, Northrop Grumman currently has a Zacks Rank of #2 (Buy) thanks to favorable earnings estimate revisions from covering analysts.

Since we recommend that investors select stocks carrying Zacks Rank of 1 (Strong Buy) or 2 (Buy) and Style Scores of A or B, it looks as if Northrop Grumman fits the bill. Thus, it seems as though Northrop Grumman shares could have potential in the weeks and months to come.

How Does Northrop Grumman Stack Up to the Competition?

Shares of Northrop Grumman have been soaring, and the company still appears to be a decent choice, but what about the rest of the industry? Some of its industry peers are also impressive, including Leidos Holdings (LDOS), L3Harris Technologies (LHX), and Lockheed Martin (LMT), all of which currently have a Zacks Rank of at least #2 and a VGM Score of at least B, making them well-rounded choices.

The Zacks Industry Rank is in the top 9% of all the industries we have in our universe, so it looks like there are some nice tailwinds for Northrop Grumman, even beyond its own solid fundamental situation.

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