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Northrop Grumman (NOC) Wins $429M Deal for EHF XDR Payloads


Northrop Grumman’s NOC Aerospace Systems business recently clinched a $429-million contract for two Extremely High Frequency Data Rate (EHF XDR) payloads. These high-frequency payloads will be used for the recapitalization of the Enhanced Polar System (EPS) and to support military satellite communications mission in the polar region.

Details of the Deal

The contract was awarded by the Space and Missile Systems Center, Military Satellite Communications Directorate, Los Angeles Air Force Base, California. Operations related to the deal will be carried out in Redondo Beach, CA.

Northrop Grumman will utilize fiscal 2017 and fiscal 2018 research and development funds to complete the task. Work related to the deal is scheduled to be complete by December 2022.

A Brief Note on EHF XDR Payloads

The advanced EHF system provides joint, interoperable, assured connectivity for war fighters in all military operations levels. It is the nation’s next-generation military strategic and tactical relay system. Its satellite- based EHF communications payloads provide advanced communications terminals, a gateway to connect with the Global Information Grid and other communication systems.

The EHF payload delivers XDR (Extreme Data Rate) communications services, providing data rates up to 8.192 Mbps per user. This helps Air Force system operators to rapidly establish and reconfigure
networks to meet dynamic command and control requirements.

Our View

In the past couple of years, frequent cyber-attacks, following the one in May 2017 with more than 45,000 attacks, has been affecting various nations. We believe that Northrop Grumman has significant upside potential based on the U.S. government’s increased focus on Intelligence Surveillance Reconnaissance (ISR), unmanned systems as well as cyber security. Naturally, more inflow of contracts for equipment related to cyber security have been coming from the Pentagon.

However, lower volumes at the EHF program have been hampering growth of Northrop Grumman’s Space sub-segment, which develops EHF systems and payload. With these payloads providing survivable, protected communications to U.S. forces, we may expect more contract wins, which in turn will substantially boost the Space sub-segment’s performance.

Price Performance

Shares of Northrop Grumman have rallied about 38% in a year, compared with the broader industry’s gain of 40.1%. The underperformance may have been caused by intense competition in domestic and international markets.

Zacks Rank & Key Picks

Northrop Grumman carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same sector are Boeing BA, Huntington Ingalls HII and Spirit Aerosystems SPR, each of them sporting a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Boeing posted an average positive earnings surprise of 20.69% for the past four quarters. The Zacks Consensus Estimate for first-quarter 2018 earnings rose by 24 cents over the last 60 days.

Huntington Ingalls recorded an average positive earnings surprise of 14.22% for the last four quarters. The Zacks Consensus Estimate for first-quarter 2018 earnings has risen by 4 cents in the past 60 days.

Spirit Aerosystems has an average positive earnings surprise of 9.76% for the last four quarters. The Zacks Consensus Estimate for first-quarter 2018 earnings rose by 8 cents in the last 60 days.

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