Northrop Grumman (NYSE:NOC) - Share price, News & Analysis

Q: What is the Fair Price of NOC when looking at its future cash flows? For this estimate we use a Discounted Cash Flow model.

NOC ($470.31) is trading below our estimate of [[fair value]] ($781.97)

NOC fundamental analysis
Snowflake Score
Valuation	5/6
Future Growth	2/6
Past Performance	4/6
Financial Health	3/6
Dividends	3/6

NOC Stock Overview

Northrop Grumman Corporation operates as an aerospace and defense company worldwide.

Rewards

Trading at 39.9% below our estimate of its fair value

Earnings are forecast to grow 5.1% per year

Earnings have grown 16.4% per year over the past 5 years

Risk Analysis

Debt is not well covered by operating cash flow

High level of non-cash earnings

Northrop Grumman Competitors

General Dynamics

NYSE:GD

US$63.5b

Lockheed Martin

NYSE:LMT

US$113.7b

L3Harris Technologies

NYSE:LHX

US$44.3b

Raytheon Technologies

NYSE:RTX

US$137.1b

Price History & Performance

Summary of all time highs, changes and price drops for Northrop Grumman
Historical stock prices
Current Share Price	US$470.31
52 Week High	US$492.30
52 Week Low	US$344.89
Beta	0.62
1 Month Change	0.31%
3 Month Change	3.86%
1 Year Change	29.26%
3 Year Change	28.77%
5 Year Change	75.40%
Change since IPO	5,125.67%

Recent News & Updates

Aug 10

Why I Doubled My Northrop Grumman Investment

Northrop Grumman is one of America's largest defense contractors with high exposure in fast-growing segments like space and advanced aeronautics. I doubled the position in my dividend growth portfolio as NOC also has a low-volatility profile and outperforming total returns. While Northrop stock's valuation isn't low, accelerating orders tied to higher defense spending is expected to boost financials like free cash flow and EBITDA. Introduction I doubled my Northrop Grumman (NOC) investment this week. I made the company a part of my dividend growth portfolio last year. However, the company was my smallest holding prior to the Ukraine war as other investments benefited from capital appreciation before my NOC investment. That has changed as I just made Northrop Grumman a top 5 holding in a portfolio that includes 94% of my total net worth. In this article, I will cover a number of things including why I have so much trust in Northrop Grumman as a rock-solid, low volatility, dividend growth investment, and why ongoing macro and geopolitical developments favor investments in this defense giant. Essentially, we're dealing with a wide range of tailwinds that provide a foundation for a fundamentally-backed technical breakout on top of the fact that NOC remains one of the best sleep-well-at-night stocks. So, without further ado, let's look at the details. Low Volatility Dividend Growth But first, this is a breakdown of my dividend growth portfolio. Author While I do own a number of high-yield investments - mainly in energy and utilities - I am a big believer in buying low volatility dividend growth stocks as these investments are generally speaking great at building long-term wealth for their shareholders. This is mainly based on the quality aspect. For example, companies that pay a dividend (ignore growth) are able to not only survive but to take cash out of their business and distribute it to their owners. This separates them from all businesses that are not able to do that. It's a stamp of approval. Needless to say, I'm ignoring companies who borrow money to distribute cash as that is irresponsible and often uncovered rather quickly. Companies that are able to grow their dividend consistently are even better as they not only survive in a competitive world but they also let shareholders benefit from it by growing the dividend. Often, the dividend grows at rates above inflation, which gives investors another incentive to buy shares. This means investors buy quality, which helps these companies during bear markets. After all, investors prefer quality over speculative investments when the economy slows. The chart below shows that going back all the way to 1866, higher volatility has led to lower compounded returns. ROBECO One could make the case that this theory does not make sense. After all, higher volatility means higher risks. Higher risks require higher compensation. So, why do conservative stocks outperform? The table below comes from a 2013 article published in The Journal Of Investment Consulting, Geoffrey Gerber explains why dividend growth is such a good defensive equity strategy. He concludes that: Reduced-volatility equity strategies utilizing dividend growth in the stock selection process are shown to have historically provided a boost to risk-adjusted performance. As the table shows, investment A had the highest return as it turned $1.0 million almost into $4.3 million. This portfolio had a high annual return and a low standard deviation. Even investment C outperformed investment B despite a lower annual average return. The key was lower volatility. The Journal Of Investment Consulting (Raw Data: Twin Capital) It's all about downside protection. Even if a dividend stock does not outperform during every single bull market, preventing steep (unreleased) losses in bear markets is a big part of the deal. That's where Northrop Grumman comes in. Going back 20 years, the company has returned 16.5% per year including dividends (total return). The S&P 500 returned 6.6% during this period. That's below average as the time series starts more or less at the start of the dot-com bubble. Needless to say, the standard deviation of NOC was 23.1% during this period, which is less than 8 points above the S&P 500 standard deviation. Hence, the company performs better on a volatility-adjusted basis as well (Sharpe/Sortino ratios). Portfolio Visualizer To prove that I'm not cherry-picking here, the company has continued to perform very nicely over the past 3/5/10 years with a similar standard deviation. Portfolio Visualizer Another thing I want to show you is how powerful a combination of NOC with other non-volatile investments is. The graph below shows a mix of 50% NOC and 50% Vanguard Dividend Growth ETF (VIG). Since 2007, this would have resulted in 13.3% annual compounding total returns. That's more than four points above the S&P 500. Moreover, the standard deviation is less than 100 basis points higher. Hence, it's a much more efficient portfolio with an 80% market correlation. Portfolio Visualizer So, with all of this in mind, let's look under the hood of Northrop Grumman. What Makes Northrop Grumman So Special? Northrop is one of the world's largest defense companies and my fifth-largest position since this week. When it comes to market cap, the company is the fourth-largest player in the industry behind Raytheon Technologies (RTX), Lockheed Martin (LMT), and Boeing (BA). In this case, commercial aerospace has been included. Aerospace & defense is by far my biggest industry as it covers 24.8% of my portfolio. That's a lot, and most of it is defense exposure. I made that decision based on a number of factors. The most important is the anti-cyclical behavior of the industry. While defense stocks do sell-off along with the market during bear markets, sell-offs are often much less severe as defense companies have little to no commercial exposure. The biggest risk is supply risk, not demand risk. Before I go over recent defense budget developments, it's fair to conclude that defense spending has been boosted in almost every single recession since the second world war. That makes sense for one major reason, which is that defense spending is an efficient way to maintain manufacturing employment. For example, major defense projects like the F-35 have tens of thousands of minor and major suppliers. Spending money on these projects benefits hundreds of thousands of employees, to put it very bluntly. St. Louis Federal Reserve Another reason why I like Northrop is that it's a high-tech company. While Apple (AAPL) is my only holding in the technology sector, I believe that Northrop is my biggest high-tech holding. Just like my investments in its peers, the goal is not to make money from wars (and I have never talked to someone who wanted war), but to benefit from war prevention and technological developments. This includes space developments. Or as Northrop puts it: Northrop Grumman solves the toughest problems in space, aeronautics, defense, and cyberspace to meet the ever-evolving needs of our customers worldwide. Besides that, the company produces the fuselages for both the F-35 and F-18 jets, it has a wide range of products and services covering everything from the depths of the seas to space and in between. Northrop Grumman Especially in the air, the company is a major player as it is the producer of the B-2 Spirit bomber, it has competed in almost every single major defense project, and it is the owner of the soon-to-be-released B-21 Raider, the successor of the B-2 and what some call a huge advantage over both Russia and China. As Christian Orr writes: If the program continues to proceed as planned, the B-21 will indeed be an impressive bomber. It will have sufficient range to reach Red China itself if necessary, with the capability to strike adversaries with conventional long-range cruise missiles, the B61-12 nuclear gravity bomb, and the AGM-86B nuclear cruise missile alike. The aeronautics segment also produces unmanned drones like the RQ-4 Global Hawk, the NATO version called Alliance Ground Surveillance, and manned battle management planes like the E-2D Advanced Hawkeye. 49% of contracts in this segment are cost-type contracts, meaning variable given the rate of inflation, which is good in high-inflation environments. In 2021, this segment did $11.3 billion in sales. What I find interesting is that the company's space systems segment did $10.6 billion in sales. This segment has a stunning $37.1 billion in backlog (orders that have not been turned into finished products). That's almost half of the company's current $80 billion backlog. In its space segment, the company has 39% restricted customers, meaning it's not publicly known who is behind the order. 28% comes from the Air Force, followed by NASA with 13% of total sales. 74% of all contracts are adjusted for inflation. Key programs include launch & strategic missile products like Trident II (nuclear-capable rockets), Antares, and related systems. 64% are space-only products like support for the James Webb telescope and various other programs. Citigroup believes that space could be a $1 trillion industry by 2040 as launch costs are set to drop 95%. In other words, it's set to become a way more accessible industry. As reported by CNBC earlier this year: Citi's estimates for the industry match forecasts published in recent years by Morgan Stanley, Bank of America and others. The global space economy's value reached $424 billion in 2020, according to research from Space Foundation, having expanded 70% since 2010. "Revenue from manufacturing, launch services and ground equipment will make up the majority of the revenue growth in the satellite sector," Citi said. "However, the fastest growth rate is expected to come from new space applications and industries, with revenue forecast to rise from zero to $101 billion over the period." According to Northrop: Our customers have made it clear that space underpins many missions vital to our national security. And we recognize that we need to think about space differently as a rapidly evolving contested domain. Before I move over to the dividend, I want to highlight some recent geopolitical developments, especially with regard to defense spending. Higher Defense Spending & (Inter) National Security Defense spending has always been in an uptrend as I discussed in the first part of this article. However, there are now at least two major reasons to boost spending (excluding inflation). The war in Ukraine is the biggest threat to European security since the second world war. While Russia is struggling to gain territory in Ukraine in a horrible conflict, European nations are finally realizing that the biggest driver of defense is not engaging in a hot war with Russia, but to boost spending in order to prevent an invasion of other countries, in the first place. In an earlier article, I highlighted NATO comments that the 2% defense spending target (as a percentage of GDP) is now no longer the goal, but the expected bottom. In other words, above-2% spending is expected. This is what Northrop commented on that: We've seen a fundamental shift in global commitment of resources for defense and national security, particularly in Europe. Just this year, we've seen Finland and Sweden progress their membership in NATO and many European countries increase or state their plans to increase their defense budget. In general, the geopolitical tensions have caused bipartisan support for higher defense spending in the US as well. Note that China has threatened Taiwan as well - especially after Pelosi decided to visit the Island. In June, Defense One reported that the defense budget for 2023 was on pace to come in close to $860 billion. The Senate's bill includes $817.33 billion for the Defense Department, according to a summary of the legislation released by the committee. Combined with national-security funding at the Energy Department and other defense programs outside the jurisdiction of the bill, the total national defense topline would be $857.64 billion. A chart I used in my L3Harris (LHX) article shows that the Senate Armed Services Committee ("SASC") budget request would exceed the 2022 budget by 9.5%.

Jul 28

Northrop Grumman Systems received a $533.9M contract for artillery

Northrop Grumman Systems (NYSE:NOC) received a $533.9M firm-fixed-price contract for the M782 multi-option fuze for artillery. Work locations and funding will be determined with each order, with an estimated completion date of July 26, 2027. U.S. Army Contracting Command, Rock Island Arsenal, Illinois, is the contracting activity.

Jul 19

Solstar Space WAP to enable communications aboard NASA's HALO module

Northrop Grumman (NYSE:NOC) has selected space-based connectivity company Solstar Space to provide Wireless Access Points (WAP) for NASA's Habitation and Logistics Outpost (HALO) module. Planned for launch in 2024, HALO is a habitation module built by Northrop Grumman Innovation Systems (NOC). Solstar Space has been tapped to develop the WiFi Access Points that will be used for communications aboard HALO. The Solstar WAP will provide WiFi network for communications with ground control, the lunar surface, and spacecraft. Yesterday, L3Harris Technologies (LHX) and Northrop Grumman (NOC) were awarded contracts to build missile tracking satellites for space defense

Jul 04

Northrop Grumman Corporation (NYSE:NOC) Shares Could Be 35% Below Their Intrinsic Value Estimate

Does the July share price for Northrop Grumman Corporation ( NYSE:NOC ) reflect what it's really worth? Today, we will...

Shareholder Returns

	NOC	US Aerospace & Defense	US Market
7D	-1.6%	0.3%	1.3%
1Y	29.3%	6.1%	-11.7%

Return vs Industry: NOC exceeded the US Aerospace & Defense industry which returned 5.5% over the past year.

Return vs Market: NOC exceeded the US Market which returned -11.6% over the past year.

Price Volatility

Is NOC's price volatile compared to industry and market?
NOC volatility
NOC Average Weekly Movement	4.2%
Aerospace & Defense Industry Average Movement	6.6%
Market Average Movement	7.8%
10% most volatile stocks in US Market	16.9%
10% least volatile stocks in US Market	3.2%

Stable Share Price: NOC is less volatile than 75% of US stocks over the past 3 months, typically moving +/- 4% a week.

Volatility Over Time: NOC's weekly volatility (4%) has been stable over the past year.

About the Company

Founded	Employees	CEO	Website
1939	88,000	Kathy Warden	https://www.northropgrumman.com

Northrop Grumman Corporation operates as an aerospace and defense company worldwide. The company’s Aeronautics Systems segment designs, develops, manufactures, integrates, and sustains aircraft systems. This segment also offers unmanned autonomous aircraft systems, including high-altitude long-endurance strategic ISR systems and vertical take-off and landing tactical ISR systems; and strategic long-range strike aircraft, tactical fighter and air dominance aircraft, and airborne battle management and command and control systems.

Northrop Grumman Fundamentals Summary

How do Northrop Grumman's earnings and revenue compare to its market cap?
NOC fundamental statistics
Market Cap	US$72.76b
Earnings (TTM)	US$5.67b
Revenue (TTM)	US$34.96b

12.8x

P/E Ratio

2.1x

P/S Ratio

Is NOC overvalued?

See Fair Value and valuation analysis

Earnings & Revenue

Key profitability statistics from the latest earnings report
NOC income statement (TTM)
Revenue	US$34.96b
Cost of Revenue	US$27.64b
Gross Profit	US$7.32b
Other Expenses	US$1.64b
Earnings	US$5.67b

Last Reported Earnings

Jun 30, 2022

Next Earnings Date

n/a

Earnings per share (EPS)	36.67
Gross Margin	20.93%
Net Profit Margin	16.23%
Debt/Equity Ratio	94.1%

How did NOC perform over the long term?

See historical performance and comparison

Dividends

1.5%

Current Dividend Yield

18%

Payout Ratio

We’ve recently updated our valuation analysis.

Valuation

Is NOC undervalued compared to its fair value, analyst forecasts and its price relative to the market?

Valuation Score

5/6

Valuation Score 5/6

Price-To-Earnings vs Peers
Price-To-Earnings vs Industry
Price-To-Earnings vs Fair Ratio
Below Fair Value
Significantly Below Fair Value
Analyst Forecast

Key Valuation Metric

Which metric is best to use when looking at relative valuation for NOC?

Other financial metrics that can be useful for relative valuation.

The above table shows the n/a ratio for NOC. This is calculated by dividing NOC's market cap by their current preferred multiple.
What is NOC's n/a Ratio?
n/a Ratio	0x
n/a	n/a
Market Cap	US$72.76b

NOC key valuation metrics and ratios. From Price to Earnings, Price to Sales and Price to Book to Price to Earnings Growth Ratio, Enterprise Value and EBITDA.
Key Statistics
Enterprise Value/Revenue	2.5x
Enterprise Value/EBITDA	9.8x
PEG Ratio	2.5x

Price to Earnings Ratio vs Peers

How does NOC's PE Ratio compare to its peers?

NOC PE Ratio vs Peers

The above table shows the PE ratio for NOC vs its peers. Here we also display the market cap and forecasted growth for additional consideration.
Company	PE	Estimated Growth	Market Cap
Peer Average	24.3x
GD General Dynamics	19.2x	8.3%	US$63.5b
LMT Lockheed Martin	24.2x	7.4%	US$113.7b
LHX L3Harris Technologies	23.2x	7.1%	US$44.3b
RTX Raytheon Technologies	30.5x	16.3%	US$137.1b
NOC Northrop Grumman	12.8x	5.1%	US$72.8b

Price-To-Earnings vs Peers: NOC is good value based on its Price-To-Earnings Ratio (12.8x) compared to the peer average (24.3x).

Price to Earnings Ratio vs Industry

How does NOC's PE Ratio compare vs other companies in the US Aerospace & Defense Industry?

Price-To-Earnings vs Industry: NOC is good value based on its Price-To-Earnings Ratio (12.8x) compared to the US Aerospace & Defense industry average (21.6x)

Price to Earnings Ratio vs Fair Ratio

What is NOC's PE Ratio compared to its Fair PE Ratio? This is the expected PE Ratio taking into account the company's forecast earnings growth, profit margins and other risk factors.

NOC PE Ratio vs Fair Ratio.
Fair Ratio
Current PE Ratio	12.8x
Fair PE Ratio	23.7x

Price-To-Earnings vs Fair Ratio: NOC is good value based on its Price-To-Earnings Ratio (12.8x) compared to the estimated Fair Price-To-Earnings Ratio (23.7x).

Share Price vs Fair Value

What is the Fair Price of NOC when looking at its future cash flows? For this estimate we use a Discounted Cash Flow model.

Below Fair Value: NOC ($470.31) is trading below our estimate of fair value ($781.97)

Significantly Below Fair Value: NOC is trading below fair value by more than 20%.

Analyst Price Targets

What is the analyst 12-month forecast and do we have any statistical confidence in the consensus price target?

Analyst Forecast: Target price is less than 20% higher than the current share price.

Discover undervalued companies

Future Growth

How is Northrop Grumman forecast to perform in the next 1 to 3 years based on estimates from 14 analysts?

Future Growth Score

2/6

Future Growth Score 2/6

Earnings vs Savings Rate
Earnings vs Market
High Growth Earnings
Revenue vs Market
High Growth Revenue
Future ROE

5.1%

Forecasted annual earnings growth

Earnings and Revenue Growth Forecasts

Analyst Future Growth Forecasts

Earnings vs Savings Rate: NOC's forecast earnings growth (5.1% per year) is above the savings rate (1.9%).

Earnings vs Market: NOC's earnings (5.1% per year) are forecast to grow slower than the US market (14.5% per year).

High Growth Earnings: NOC's earnings are forecast to grow, but not significantly.

Revenue vs Market: NOC's revenue (5.6% per year) is forecast to grow slower than the US market (8% per year).

High Growth Revenue: NOC's revenue (5.6% per year) is forecast to grow slower than 20% per year.

Earnings per Share Growth Forecasts

Future Return on Equity

Future ROE: NOC's Return on Equity is forecast to be high in 3 years time (27.5%)

Discover growth companies

Past Performance

How has Northrop Grumman performed over the past 5 years?

Past Performance Score

4/6

Past Performance Score 4/6

Quality Earnings
Growing Profit Margin
Earnings Trend
Accelerating Growth
Earnings vs Industry
High ROE

16.4%

Historical annual earnings growth

Earnings and Revenue History

Quality Earnings: NOC has a high level of non-cash earnings.

Growing Profit Margin: NOC's current net profit margins (16.2%) are higher than last year (12.1%).

Past Earnings Growth Analysis

Earnings Trend: NOC's earnings have grown by 16.4% per year over the past 5 years.

Accelerating Growth: NOC's earnings growth over the past year (24.8%) exceeds its 5-year average (16.4% per year).

Earnings vs Industry: NOC earnings growth over the past year (24.8%) underperformed the Aerospace & Defense industry 27.7%.

Return on Equity

High ROE: NOC's Return on Equity (41.6%) is considered outstanding.

Discover strong past performing companies

Financial Health

How is Northrop Grumman's financial position?

Financial Health Score

3/6

Financial Health Score 3/6

Short Term Liabilities
Long Term Liabilities
Debt Level
Reducing Debt
Debt Coverage
Interest Coverage

Financial Position Analysis

Short Term Liabilities: NOC's short term assets ($11.6B) exceed its short term liabilities ($9.0B).

Long Term Liabilities: NOC's short term assets ($11.6B) do not cover its long term liabilities ($19.3B).

Debt to Equity History and Analysis

Debt Level: NOC's net debt to equity ratio (85.6%) is considered high.

Reducing Debt: NOC's debt to equity ratio has reduced from 119.5% to 94.1% over the past 5 years.

Debt Coverage: NOC's debt is not well covered by operating cash flow (14.9%).

Interest Coverage: NOC's interest payments on its debt are well covered by EBIT (14.1x coverage).

Balance Sheet

Discover healthy companies

Dividend

What is Northrop Grumman current dividend yield, its reliability and sustainability?

Dividend Score

3/6

Dividend Score 3/6

Notable Dividend
High Dividend
Stable Dividend
Growing Dividend
Earnings Coverage
Cash Flow Coverage

1.47%

Current Dividend Yield

Dividend Yield vs Market

Notable Dividend: NOC's dividend (1.47%) isn’t notable compared to the bottom 25% of dividend payers in the US market (1.5%).

High Dividend: NOC's dividend (1.47%) is low compared to the top 25% of dividend payers in the US market (4.05%).

Stability and Growth of Payments

Stable Dividend: NOC's dividends per share have been stable in the past 10 years.

Growing Dividend: NOC's dividend payments have increased over the past 10 years.

Earnings Payout to Shareholders

Earnings Coverage: With its low payout ratio (17.8%), NOC's dividend payments are well covered by earnings.

Cash Payout to Shareholders

Cash Flow Coverage: With its high cash payout ratio (247.3%), NOC's dividend payments are not well covered by cash flows.

Discover strong dividend paying companies

Management

How experienced are the management team and are they aligned to shareholders interests?

3.3yrs

Average management tenure

CEO

Kathy Warden (50 yo)

4.58yrs

Tenure

US$19,876,767

Compensation

Ms. Kathy J. Warden has been President of Northrop Grumman Corporation since January 1, 2018, Chief Executive Officer since January 1, 2019 and Chair of the Board August 1, 2019. Ms. Warden served as the C...

CEO Compensation Analysis

Compensation vs Market: Kathy's total compensation ($USD19.88M) is above average for companies of similar size in the US market ($USD12.88M).

Compensation vs Earnings: Kathy's compensation has been consistent with company performance over the past year.

Leadership Team

Experienced Management: NOC's management team is considered experienced (3.3 years average tenure).

Board Members

Experienced Board: NOC's board of directors are considered experienced (8.9 years average tenure).

Ownership

Who are the major shareholders and have insiders been buying or selling?

Insider Trading Volume

Insider Buying: Insufficient data to determine if insiders have bought more shares than they have sold in the past 3 months.

Recent Insider Transactions

Ownership Breakdown

Dilution of Shares: Shareholders have not been meaningfully diluted in the past year.

Data	Last Updated (UTC time)
Company Analysis	2022/08/11 00:00
End of Day Share Price	2022/08/11 00:00
Earnings	2022/06/30
Annual Earnings	2021/12/31