Northrop Grumman Corporation NOC recently clinched a modification contract for providing upgraded software and hardware support to The Boeing Company’s BA EA-18G aircraft. Work pertaining to this deal is scheduled to be over by Jul 2019.
Details of the Deal
Valued at $91 million, this contract has been awarded by the Naval Air Warfare Center Weapons Division, China Lake, CA; and work under this will be carried out in Pt. Mugu, CA. Northrop will utilize fiscal 2017 research, development, test and evaluation (Navy) funds to complete the work.
Northrop has been entrusted withthe design, development and implementation of Airborne Electronic Attack (AEA) requirements for software configuration and upgrade of the same as well as ancillary hardware in support of the EA-18G aircraft for the U.S. and the government of Australia. Notably, the U.S. Navy will fund 92% of the total contract while the rest of the expenses will be borne by the Australian government.
A Brief Note on EA-18G & AEA
Boeing’s EA-18G Growler is the most advanced AEA aircraft that operates either from an aircraft or from land bases. The EA-18G integrates advanced AEA capabilities which have been developed and manufactured by Northrop for the purpose of identifying, degrading and destroying hostile radar-guided air defense and communication systems.
Additionally, as the principal subcontractor to Boeing, Northrop designs and produces the EA-18G entire center fuselages and center barrel replacement assemblies apart from integrating all associated subsystems including the electronic attack capabilities as well as conducting after-delivery product support.
Being one of the largest aerospace and defense contractors in the U.S., Northrop’s product line serves high-priority categories such as defense electronics, unmanned aircraft and missile defense satisfactorily. Northrop is a leading name in AEA technology, having designed, manufactured and delivered the first electronic attack systems more than five decades ago. Over the years, Northrop has refined and expanded AEA capabilities to ensure successful completion of missions.
The company’s recently released fourth-quarter 2016 results depict an encouraging scenario. Impressively, a growing list of domestic and international opportunities can be observed across its businesses as well. This includes the Ground Based Strategic Deterrent program, Triton for Australia, SABR Radar for the U.S. Air Force and several international customers. Further, additional international programs are being pursued by its Mission systems and Technology Services segments in Australia and in the Middle East.
Such a diverse product portfolio helps Northrop win regular contracts from the U.S. and allied countries. Among the major contracts won in 2017, the modification deal worth $140 million for Battle Field Airborne Communication Node (BACN) payload, operations and support is a significant one.
Going forward, we expect Northrop to exhibit similar outperformance in the upcoming quarters as it continues to win valuable contracts from the Pentagon as well as the nation’s foreign allies. Such contracts will form the foundation for profitable growth and operating income and margin rate expansion over the long term. The aforementioned contract is one such deal.
However, year to date, Northrop underperformed the Zacks categorized Aerospace/Defense industry, with the company’s gain of 4.9% being lower than the industry’s addition of 10.1%. This might have been led by intense competition from some of the largest defense primes in the U.S., particularly The Boeing Company BA, Lockheed Martin Corp. LMT and Embraer S.A. ERJ. Also, the current quarter EPS estimates for the company have declined 3.7% over the past 60 days, which reflects investors’ reluctance to consider the stock as a suitable investment option.
Northrop 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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