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Northrop Grumman Wins $45M Navy Deal to Support LCS Program

Zacks Equity Research

Northrop Grumman Corp.’s NOC subsidiary, Northrop Grumman Systems Corp., recently secured a $45.5-million contract to support the Littoral Combat Ship (LCS) Mission Modules Program, by providing engineering services. The contract was awarded by the Naval Sea Systems Command, Washington, D.C.

Work related to the deal will be performed in Bethpage, NY; Mayport, FL; San Diego, CA and other locations across the United States. Tasks related to the deal will get completed by March 2020. Northrop Grumman will utilize fiscal 2019 operations and maintenance; other procurement; research, development, test, and evaluation; and weapons procurement (Navy) funds to complete the task.

A Brief Note on Littoral Combat Ship

A Littoral Combat Ship or LCS is a type of relatively small surface vessel developed for operations in the littoral zone. It is an agile, focused- mission platform that can operate in near-shore environments and open ocean. The LCS’s primary missions are antisubmarine warfare (ASW), mine countermeasures (MCM) and surface warfare (SUW) against small boats, particularly in littoral waters.

Our View

In the last few years, the United States has strategically strengthened its naval power by developing and upgrading combat ships to tackle the rising widespread geo-political tensions across the world. Inevitably, demand for technical expertise, support services and other services for the proper functioning of these ships remains high and benefits defense contractors like Northrop Grumman to a great extent.

Meanwhile, the fiscal 2019 U.S. defense budget has made provisions for spending $18.4 billion on shipbuilding, which specifically included an allotment of $254.1 million for the procurement of LCS mission module equipment. Such budgetary developments reflect solid growth prospects, as demand for various technical services related to the modules program will also increase. Such developments, in turn, are likely to boost Northrop
Grumman’s profit margin.

Price Performance

Shares of Northrop Grumman have plunged about 21.4% in a year compared with the industry’s decline of 4.1%.

Zacks Rank & Key Picks    

Northrop Grumman currently carries Zacks Rank #3 (Hold). A few better-ranked stocks in the same sector are The Boeing Company BA, Spirit Aerosystems Holdings SPR and Heico Corporation HEI.

While Boeing and Spirit Aerosystems sport a Zacks Rank #1 (Strong Buy), Heico carries a Zacks Rank #2 (Buy). You can see the complete .list of today’s Zacks #1 Rank stocks here.

Boeing came up with average positive earnings surprise of 17.08% in the last four quarters. The Zacks Consensus Estimate for 2019 earnings has risen 11.3% to $20.13 in the past 90 days.

Spirit Aerosystems’ long-term growth estimates currently stand at 7.80%. The Zacks Consensus Estimate for 2019 earnings has risen 3% to $7.56 in the past 90 days.

Heico Corporation’s long-term growth estimates currently stand at 12.10%. The Zacks Consensus Estimate for 2019 earnings has risen 5.4% to $2.14 in the past 90 days.

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