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Northrop Grumman Wins Deal to Upgrade Avionics in Helicopters


Northrop Grumman Corp.’s NOC subsidiary, Northrop Grumman Systems Corp., recently secured an $89-million modification contract for conducting research and development of AH-1Z and UH-1Y System Configuration Sets (SCSs) mission computers, to support the U.S. Marine Corps. The contract was awarded by the Naval Air Warfare Center Weapons Division, China Lake, CA.

Details of the Deal

Per the terms of the contract, Northrop Grumman will design, develop and implement upgrades in relation to the existing mission computer software and ancillary hardware. The company will also provide improved functionality and obsolescence management of the mission computer, along with deliver system improvement and demonstration products such as proposed prototypes, pre-production products, support equipment
enhancements and models of weapon systems. These products are associated with SCS block upgrades to the Integrated Avionics Systems (IASs)

Other tasks under this deal include on-site engineering, delivery of documentation and analysis. Northrop Grumman will need to make the aforementioned moves, in order to investigate future IAS improvements required by the government, perform analysis of alternatives and delivery of documentation that may result in SCS implementation, system improvement, or demonstration products. Work related to the deal will be performed mostly in Woodland Hills, CA and is expected to be completed in April 2020.

A Brief Note on Integrated Avionics Systems (IASs)

Northrop Grumman-built IAS provides communications, navigation and identification (CNI) functions. These functions allow fighter pilots to reliably communicate with friendly forces, identify foes, navigate to and from targets, and detect and avoid threats.

Our View

A rapid increase in terror attacks along with the widespread rise of ISIS has compelled nations to strengthen arsenal and bump up defense budget. With the United States being the largest exporter of defense equipments across the world, the nation enjoys a steady flow of contracts for its combat-proven weaponries from both Pentagon and its foreign allies. With military jets and helicopters constituting a major portion of a nation’s armaments, a steady flow of contracts for these weaponries are on the rise lately.

Now, AH-1Z and UH-1Y are two combat-proven helicopters manufactured by Textron’s TXT Bell business segment. With Bell’s copters capturing a major share of the military helicopter space, thanks to their advanced mission capabilities, the AH-1Z and UH-1Y models enjoy a decent demand drive across the globe. Moreover, making these helicopters all the more advanced by incorporating its state-of-the art avionics systems will surely enable Northrop Grumman to clinch more notable contracts, like the latest one, in coming days.

Furthermore, toward the end of June, the U.S. Senate approved the fiscal 2019 defense budget that provisioned investments of $21.7 billion for military aircraft. Such budgetary developments reflect substantial growth prospects for Northrop Grumman, which develops and delivers varied sensors-based programs to make these military jets all the more mission ready.

Price Performance

Shares of Northrop Grumman have rallied about 11.6% in a year compared with the broader industry’s growth of 22.1%. 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 carries a Zacks Rank #3 (Hold).

A few better-ranked stocks in the same sector are Aerojet Rocketdyne Holdings AJRD and Engility Holdings EGL. While Aerojet Rocketdyne Holdings sports a Zacks Rank #1 (Strong Buy), Engility Holdings carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Aerojet Rocketdyne came up with an average positive earnings surprise of 9.27% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen 30.9% to $1.27 in the past 90 days.

Engility Holdings delivered an average positive earnings surprise of 19% in the last four quarters. The Zacks Consensus Estimate for 2018 earnings has risen 16.1% to $2.02 in the past 90 days.

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