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Northrop Grumman’s Unit Wins $130M Deal for Global Hawk

Zacks

Northrop Grumman Corp.’s NOC unit, Aerospace Systems, has secured a contract for the Japan Global Hawk program.Valued at $130.5 million, the deal has been awarded by the Air Force Life Cycle Management Center, Wright-Patterson Air Force Base, OH.

Per the agreement, Northrop Grumman will provide long lead material to commence the program for three global hawk block 30 (I) air vehicles, two ground control elements, improved integrated sensor suite, spares and a site survey.

Scheduled to be completed by July 27, 2018, the work will be performed in San Diego, CA.

The Global Hawk gained popularity mainly on its ability to transform itself into an operational weapons system as and when required. It was not only used by the Air Force for maintaining overseas surveillance after the 9/11 terrorist attacks, but has also been used extensively by the National Aeronautics and Space Administration for scientific research missions.

Foreign military sales (FMS) provides the much needed respite at the time of negative defense budget revision and acts as a key performance catalyst for Northrop as well as other defense companies of United States. FMS are expected to contribute significantly to earnings given the solid prospects available in overseas.

Development in Defense Space

Rising terror activities and current tension between the United States and North Korea have added to growth of the industry. In sync with this, theUnited Statesand its major allies has been strengthening their defense to combat the internal and external threats.

On this note, the U.S. Senate recently passed fiscal 2018 defense policy bill worth $700 billion, which was proposed in July 2017. This bill provides about $640 billion for Pentagon’s main operations like buying weapons and paying the troops. The rest $60 billion for Overseas Contingency Operations will be utilized to fund the conflicts in Afghanistan, Iraq, Syria and elsewhere.

Consequently, the current scenario in the defense industry is anticipated to further aid large companies like Northrop Grumman, The Boeing Co. BA and Lockheed Martin Corporation LMT.

Our View

Northrop Grumman seems to benefit from a strong presence in Air Force, Space & Cyber Security programs. Moreover, the company’s product innovation and focus on strengthening its ISR wing will help maintain a stable earnings stream amid rapidly changing requirements of the defense landscape.

Being one of the largest domestic defense contractors, Northrop Grumman also gets regular orders from the various verticals of the U.S. Defense. It receives orders from the international market through foreign military sales (FMS) as well. Markedly, the company’s international market accounted for 13.1% of its business in 2016.

Price Movement

Shares of Northrop Grumman have rallied 6.1% since Northrop Grumman's announcement of Orbital ATK OA acquisition compared with the industry’s gain of 3.9%.

This shows that the news of the acquisition has received positive response from the market.

Zacks Rank

Northrop Grumman carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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