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Northrop Grumman Wins $3.2B Deal to Build E-2D Hawkeye Jet

Zacks Equity Research

Northrop Grumman Corp.’s NOC business unit, Aerospace Systems, recently clinched a modification contract for full-rate production of 24 E-2D Advanced Hawkeye aircraft of the 7th lot. The deal was awarded by the Naval Air Systems Command, Patuxent River, Maryland.

Valued at $3.2 billion, this multi-year agreement is expected to be completed by August 2026. Majority of the work related to this deal will be carried out in Melbourne and St. Augustine, FL, as well as Syracuse, NY.

A Brief Note on Hawkeye Aircraft

Hawkeye is an airborne, all-weather, tactical, early-warning aircraft used by the U.S. Navy. E-2D is the fourth version of the E-2 Hawkeye. The technology and gadgets fitted in this aircraft increase its visibility on targets far away. Notably, the E-2D Advanced Hawkeye has a structurally distinctive design — a rotating rotodome and four vertical stabilizer tail configurations — that provides 360-degree surveillance at all times.

Northrop Grumman is supported by other industry leaders on this program. Lockheed Martin’s LMT unit — Lockheed Martin Naval Electronics and Surveillance Systems — supplies the principal AN/APY-9 radar system for the Hawkeye. L-3 Technologies’ LLL unit supplies the ultra-high frequency electronically scanned array antenna. Meanwhile, Raytheon’s RTN Space and Airborne Systems provides the T-56-A engines.

Northrop Grumman Prospects

In recent times, the importance of military aircraft in the U.S. aerospace-defense market has gained significant traction. This upside can be attributed to advancements and integration of new tactical and logistical features along with the inclusion of improved radar systems and the availability of advanced system engineering services. Being a prominent aircraft manufacturer, Northrop Grumman is benefiting from such crucial developments that are resulting in solid demand for combat jets.

Furthermore, the company’s Aerospace Systems unit develops and designs military aviation aircraft, manned aircraft, autonomous systems and spacecraft. These product lines allow the division to receive a steady inflow of contracts from the Pentagon and the foreign allies of the United States. As a result, this segment has been witnessing solid top-line growth. In the fourth quarter of 2018, the Aerospace Systems unit generated 6% revenue growth, with the Hawkeye jet being one of the contributors to its top-line performance.

As the E-2D Hawkeye Aircraft is a significant defense program for the government of the United States, we can expect more contract inflows like the latest one in the near future. These, in turn, should further bolster the Aerospace segment’s top line in coming days.

Last month, the U.S. government proposed its fiscal 2020 defense budget that includes a spending plan of $57.7 billion on aircraft, a massive increase of 166% from the approved fiscal 2019 defense spending on aircraft. If approved, such spending provision should usher in more contracts for Northrop Grumman moving ahead.

Price Performance

Shares of Northrop Grumman have lost 21.8% in a year compared with the industry’s 3.7% decline.

Zacks Rank

Northrop Grumman currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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Lockheed Martin Corporation (LMT) : Free Stock Analysis Report
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