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Northrop Grumman Secures $62M Navy Deal for BAMS-D Program


Northrop Grumman Corp.’s NOC subsidiary, Northrop Grumman Systems Corp., recently secured a $61.8 million contract to support the Broad Area Maritime Surveillance-Demonstrator (BAMS-D) program. The contract was awarded by the Naval Air Systems Command, Patuxent River, MD.

Details of the Deal

Per the terms, the subsidiary will provide operator, maintenance, logistic support and sustainment engineering services for the Broad Area Maritime Surveillance-Demonstrator program. These efforts will ensure the aircraft’s capability for performing intelligence, surveillance and reconnaissance missions.

Majority of the work will be performed in Patuxent River, MD, while the remaining work will be executed in Rancho Bernardo, CA and various forward operating locations outside the United States. Work related to the deal is expected to get completed in June 2019. Northrop Grumman will utilize fiscal 2018 operations and maintenance (Navy) funds for completing the task.

Benefits of the BAMS Program

The Broad Area Maritime Surveillance-Demonstrator (BAMS-D), a precursor to the MQ-4C Triton program, is an unmanned aircraft system (UAS) produced for the Navy. Based on the Global Hawk unmanned air system designed for land surveillance, the BAMS-D systems are modified to work in a maritime environment that can support mission flights for more than 24 hours at high altitudes. Its sensors can cover vast areas, imaging huge swaths of territory, open oceans and littorals, providing improved surveillance pictures to fleet commanders.

Our View

We believe that Northrop Grumman possesses significant upside potential based on the U.S. government’s increased focus on intelligence, surveillance and reconnaissance (ISR) programs.

Northrop Grumman’s Aerospace Systems unit, which develops unmanned aircraft systems, reported first-quarter 2018 revenues of $3.28 billion that increased 9.9% year over year. We believe the latest contract along with the other notable ones that the company has secured in recent times will allow its Aerospace Systems unit to reflect similar solid results in upcoming quarters as well.

Moreover, in February 2018, President Trump revealed the fiscal 2019 defense budget proposal, which included an investment plan of $13.7 billion for science and technology, which included ISR Programs. Considering such favorable budgetary revisions, we may expect the company to win more such contracts, like the latest one, in the days ahead.

Price Performance

Shares of Northrop Grumman have rallied about 27.8% in a year compared with the broader industry’s growth of 40.9%. The underperformance may have been caused by the intense competition that the company faces in both domestic and international markets.

Zacks Rank & Key Picks

Northrop Grumman currently sports a Zacks Rank #1 (Strong Buy). A few other top-ranked stocks in the same space are Textron TXT, Boeing BA and Wesco Aircraft Holdings WAIR, each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Textron recorded an average positive earnings surprise of 16.64% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 2.95% to $3.15 in the last 90 days.

Boeing recorded an average positive earnings surprise of 29.51% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen by 4.4% to $14.67 in the last 90 days.

Wesco Aircraft Holdings’ long-term growth rate is pegged at 12%. The Zacks Consensus Estimate for 2018 earnings has risen by 10% to 77 cents in the last 90 days

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