Last Update 03 Dec 25

NOC: Future Defense Budgets Will Support Cash Flows And Share Outperformance

Analysts have modestly raised their price target on Northrop Grumman to approximately $670 per share, reflecting confidence in the company’s stable mid single digit growth outlook, expanding 2026 budget visibility across key programs, and improving long term cash generation from platforms like B 21 and Sentinel.

Analyst Commentary

Recent Street research reflects a generally constructive stance on Northrop Grumman, with multiple price target increases clustered around the mid to high $600s and at least one upgrade to a Buy rating. Analysts highlight a mix of program specific tailwinds, solid backlog visibility, and improving long term cash generation that together support the higher valuation framework.

Bullish Takeaways

Bullish analysts point to fiscal 2026 guidance calling for mid single digit organic growth as a key support for the re rating. They view the outlook as stable even amid potential macro and policy noise.
Incremental funding for Sentinel, B 21, TACAMO, and E 2D in the 2026 budget proposal is seen as a structural growth driver. This is viewed as underpinning multi year revenue visibility and justifying higher earnings and cash flow estimates.
Longer term, bullish analysts expect strong free cash flow beyond 2028 as B 21 turns cash profitable and Sentinel moves closer to full rate production. They see this as a potential catalyst for multiple expansion and enhanced capital returns.
The company’s positioning across nuclear deterrence, munitions, missiles, and space is viewed as closely aligned with evolving Department of Defense priorities. This is seen as supporting sustained demand and a premium strategic valuation.

Bearish Takeaways

More cautious analysts maintain neutral stances despite raising price targets. They emphasize that the current valuation already reflects much of the anticipated mid single digit growth and budget upside.
There is concern that ongoing government funding debates and the risk of shutdowns could inject periodic volatility into forecasts and investor sentiment, even if the direct financial impact is expected to be limited.
Some bearish analysts highlight execution risk as major programs scale. They warn that schedule slippage, cost inflation, or technical challenges on complex platforms could pressure margins and weigh on the stock’s risk reward profile.
While the company is seen as less exposed to low end disruption than peers, competitive dynamics and newer entrants in defense and space are still viewed as potential headwinds to longer term multiple expansion.

What's in the News

The Pentagon is expected to choose the contractor for the Navy's next generation F/A XX stealth fighter within days, with Northrop Grumman competing directly against Boeing for the multibillion dollar program (Reuters).
The U.S. Defense Department is urging missile suppliers to double or even quadruple production, a push that could benefit Northrop Grumman given its role across high demand missile systems (Wall Street Journal).
Northrop Grumman is among a group of major defense contractors in focus as Defense Secretary Pete Hegseth convenes top U.S. military commanders for an urgent strategy meeting at a Marine Corps base in Virginia (Washington Post).
Potential changes to U.S. arms export rules to ease the sale of advanced military drones could expand international demand for Northrop Grumman's unmanned systems portfolio (Reuters).

Valuation Changes

Fair Value Estimate is essentially unchanged at approximately $667.21 per share, indicating no material shift in the intrinsic value assessment.
The Discount Rate has risen slightly from about 7.93 percent to roughly 8.20 percent, implying a modestly higher required return and risk premium.
Revenue Growth is effectively flat at around 5.43 percent, reflecting a stable outlook for top line expansion.
The Net Profit Margin is unchanged at approximately 9.39 percent, signaling no revised expectations for underlying profitability.
The Future P/E has risen slightly from about 25.32x to roughly 25.51x, suggesting a marginally higher valuation multiple on forward earnings.

Elevated defense spending, robust international demand, and leadership in next-generation platforms are strengthening revenue growth and enhancing operating margins.
Expansion in high-growth market segments and supportive government actions are improving program execution, cash flow, and long-term earnings stability.
Heavy dependence on major defense contracts, shifting global priorities, and execution risks threaten sustained growth, margin stability, and future international positioning.

Catalysts

About Northrop Grumman

Operates as an aerospace and defense technology company in the United States, the Asia/Pacific, Europe, and internationally.What are the underlying business or industry changes driving this perspective?

Accelerating U.S. and allied defense spending, supported by substantial increases in procurement and RDT&E budgets (e.g., 22% increase in U.S. spending for FY26) and significant new funding for key Northrop Grumman programs (B-21, Sentinel, and E-2D), is expected to drive sustained revenue growth and provide multi-year order visibility.
Global proliferation of advanced military threats and the strategic importance of missile defense and space-based systems are leading to robust international demand, with 18% year-over-year international sales growth and strong awards in markets such as Europe and the Middle East, which should further support both revenue expansion and higher-margin contracts.
Northrop Grumman's leadership on next-generation platforms, including the B-21 Raider and Sentinel programs, is benefiting from both improved program execution and favorable customer incentives, positioning these programs to contribute meaningfully to operating margins and earnings over the coming years as production ramps occur.
The ramp-up of advanced autonomous and integrated systems such as Beacon and IBCS, combined with ongoing investments in solid rocket motor capacity (targeting a near-doubling by 2029), positions the company to capitalize on high-growth, higher-margin market segments, thereby enhancing future operating margins and underlying cash flow.
Supportive government actions to remove regulatory and contractual barriers are leading to faster program execution and improved incentives, which, coupled with targeted capital investments and a strong backlog, are expected to improve earnings stability, free cash flow, and long-term profitability.

Northrop Grumman Earnings and Revenue Growth

Northrop Grumman Future Earnings and Revenue Growth

Assumptions

How have these above catalysts been quantified?

Analysts are assuming Northrop Grumman's revenue will grow by 5.5% annually over the next 3 years.
Analysts assume that profit margins will shrink from 9.7% today to 9.3% in 3 years time.
Analysts expect earnings to reach $4.4 billion (and earnings per share of $32.65) by about September 2028, up from $3.9 billion today. The analysts are largely in agreement about this estimate.
In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 23.2x on those 2028 earnings, up from 20.7x today. This future PE is lower than the current PE for the US Aerospace & Defense industry at 34.4x.
Analysts expect the number of shares outstanding to decline by 1.72% per year for the next 3 years.
To value all of this in today's terms, we will use a discount rate of 8.11%, as per the Simply Wall St company report.

Northrop Grumman Future Earnings Per Share Growth

Risks

What could happen that would invalidate this narrative?

While current demand and backlog are strong, long-term reliance on sizable U.S. government contracts (particularly B-21 and Sentinel) exposes Northrop Grumman to significant programmatic and budgetary risks including potential delays, cancellations, or changes in political priorities that could reduce revenue visibility and create volatility in top-line growth.
Growing partnerships with international allies are driving up overseas sales, but the trend toward European and other allied nations developing indigenous defense capabilities could erode Northrop Grumman's long-term international market share, eventually impacting revenue and limiting margin upside.
The company's strategy increasingly relies on large, high-cost hardware systems, even as global defense budgets may gradually shift toward software, cyber, and attritable/autonomous platforms; if Northrop is outpaced by more agile competitors in these emerging domains, it could face slower growth and potential margin compression.
Heavy ongoing capital investments in facilities, production capacity, and innovation expose the company to execution risks and create the potential for cost overruns, which-given fixed-price contract structures-could squeeze net margins and earnings if not perfectly managed or if awards/contracts do not materialize as expected.
Persistent regulatory and political attention on defense spending, combined with changing tax treatment (e.g., R&D credits), ESG pressures, and the risk of future arms control or budget constraints, could dampen institutional investor interest, reduce valuation multiples, and put long-term pressure on earnings and cash flow.

Valuation

How have all the factors above been brought together to estimate a fair value?

The analysts have a consensus price target of $603.316 for Northrop Grumman based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $690.0, and the most bearish reporting a price target of just $510.0.
In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $47.5 billion, earnings will come to $4.4 billion, and it would be trading on a PE ratio of 23.2x, assuming you use a discount rate of 8.1%.
Given the current share price of $571.63, the analyst price target of $603.32 is 5.3% higher. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.

How well do narratives help inform your perspective?

Disclaimer

AnalystConsensusTarget is a tool utilizing a Large Language Model (LLM) that ingests data on consensus price targets, forecasted revenue and earnings figures, as well as the transcripts of earnings calls to produce qualitative analysis. The narratives produced by AnalystConsensusTarget are general in nature and are based solely on analyst data and publicly-available material published by the respective companies. These scenarios are not indicative of the company's future performance and are exploratory in nature. Simply Wall St has no position in the company(s) mentioned. Simply Wall St may provide the securities issuer or related entities with website advertising services for a fee, on an arm's length basis. These relationships have no impact on the way we conduct our business, the content we host, or how our content is served to users. The price targets and estimates used are consensus data, and do not constitute a recommendation to buy or sell any stock, and they do not take account of your objectives, or your financial situation. Note that AnalystConsensusTarget's analysis may not factor in the latest price-sensitive company announcements or qualitative material.

Analysts Boost Northrop Grumman Price Target Amid Defense Growth and Mixed Sector Outlook