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Northrop Wins $115M FMS Deal

Zacks Equity Research

Defense manufacturer Northrop Grumman Corp. (NOC) received a foreign military sales (“FMS”) contract to supply the latest generation of F-16 targeting radar to several associates. This firm-fixed-price deal has a ceiling value of $115 million.

Per the contract, the company’s Electronic Business unit will deliver 16 AN/APG-68 (V)9 multimode fire control radar systems to the Royal Thai Air Force and 22 units of the same radar system to the Republic of Iraq. Moreover, the company is responsible for supplying auxiliary parts to the Egyptian Air Force, the Royal Moroccan Air Force, and the Pakistan Air Force. The company expects the work to be completed by Dec 20, 2017.

Northrop’s AN/APG-68 (V)9 system is utilized for addressing air-to-air and air-to-surface threats aboard F-16 fighter jets. The AN/APG-68 (V)9 is considered to have 33% greater range in comparison to the radar systems earlier used aboard the F-16. Its light weighted systems consume less power, and cost between 25% and 45% less than the legacy F-16 fire control radars.

Northrop has a strong presence in Air Force, Space & Cyber Security programs. The company’s product line is well positioned in high priority categories, such as defense electronics, unmanned aircraft and missile defense. The company is the fourth largest U.S. defense contractor behind The Boeing Company (BA), Lockheed Martin Corp. (LMT) and General Dynamics Corp. (GD) in terms of full year 2012 revenue.

The company’s backlog, which stood at approximately $39.4 billion at the end of the first quarter of 2013, is expected to see further upside in the near future through its strong focus areas of cyber security, modernization of defense and homeland security assets, intelligence, surveillance and reconnaissance systems, advanced electronics and software development. Additionally, the proposed 25% increase in Northrop’s funding in the 2014 budget would encourage future opportunities.

Although Northrop Grumman like its peers faces uncertainty related to the defense budget, it seems to be immune to some extent to defense budget cuts. The company presently retains a short-term Zacks Rank #2 (Buy).

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