Is Northrop Grumman Fairly Priced After Strong 2025 Gains and Defense Contract Momentum

• If you have ever wondered whether Northrop Grumman is still good value after its long run, you are not alone. This stock tends to attract patient investors who care about quality and price.
• The share price sits around $550.63, roughly flat over the last week at -0.5% and down -2.2% over the past month. It is still up 17.7% year to date and 98.0% over five years, which keeps the question of future upside very much alive.
• Recent headlines have centered on Northrop Grumman's key role in next generation defense programs and long term government contracts, underscoring how embedded the company is in US and allied defense planning. At the same time, commentary around global security tensions and shifting defense budgets has sharpened the market's focus on which contractors can convert this backdrop into durable cash flows.
• Right now, Northrop Grumman scores a 4/6 valuation check, suggesting it screens as undervalued on most but not all of our metrics. Next we will unpack those different valuation approaches, before finishing with a more holistic way to think about what the stock is really worth.

Find out why Northrop Grumman's 17.8% return over the last year is lagging behind its peers.

Approach 1: Northrop Grumman Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow model estimates what a business is worth today by projecting its future cash flows and then discounting those back to a present value. For Northrop Grumman, the model uses a 2 Stage Free Cash Flow to Equity approach based on cash flow projections.

The company generated roughly $1.75 billion in free cash flow over the last twelve months, in $. Analyst and internal estimates in the model see this rising over time, with forecast free cash flow of about $3.86 billion by 2029 and further projected growth through 2035 as Simply Wall St extrapolates beyond the formal analyst window.

When all these future cash flows are discounted back to today, the model produces an intrinsic value of about $529.75 per share in $. Compared with the current share price of roughly $550.63, the DCF output suggests the stock is about 3.9% above that estimate, which is a relatively small difference and well within a reasonable margin of error for this type of model.

Result: ABOUT RIGHT

Northrop Grumman is fairly valued according to our Discounted Cash Flow (DCF), but this can change at a moment's notice. Track the value in your watchlist or portfolio and be alerted on when to act.

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Northrop Grumman.

Approach 2: Northrop Grumman Price vs Earnings

For profitable, established companies like Northrop Grumman, the price to earnings ratio is a useful yardstick because it links what investors pay today directly to the profits the business is already generating. In general, higher expected growth and lower perceived risk justify a higher PE multiple, while slower growth or greater uncertainty usually mean a lower, more conservative range is appropriate.

Northrop Grumman currently trades on about 19.55x earnings, which is well below the Aerospace and Defense industry average of roughly 37.13x and also below a peer average of about 35.01x. Simply Wall St’s Fair Ratio framework goes a step further by estimating what a reasonable multiple should be, given the company’s earnings growth outlook, margins, industry, market cap and risk profile. This makes it more tailored than simple peer or industry comparisons, which can be skewed by outliers or different business mixes.

On this basis, Northrop Grumman’s Fair Ratio is estimated at around 26.95x, noticeably higher than the current 19.55x. That gap suggests the shares trade at a discount to what would be expected for a company with its characteristics.

Result: UNDERVALUED

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Upgrade Your Decision Making: Choose your Northrop Grumman Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let us introduce you to Narratives, a simple tool on Simply Wall St’s Community page that lets you connect your view of a company’s story with a financial forecast and a resulting fair value estimate. This allows you to clearly see whether you think the stock is worth more or less than today’s price. A Narrative is your own story behind the numbers, where you combine assumptions about Northrop Grumman’s future revenue, earnings and margins with a fair value that you can compare to the current share price to decide whether you would buy, hold or sell. Narratives are dynamic and update whenever new information like earnings or major defense news arrives, helping your thesis evolve rather than stay static. For example, one Northrop Grumman Narrative on the platform might assume strong cash flows and assign a fair value near $690 per share. A more cautious Narrative could focus on budget or execution risks and land closer to $510, showing how different but structured perspectives can coexist and guide better decisions.

Do you think there's more to the story for Northrop Grumman? Head over to our Community to see what others are saying!

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

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