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Northrop Grumman due diligence.

Hatchworks has conducted due diligence on Northrop Grumman, one of American’s leader in the Aerospace & Defence sector with 90,000 employees that aims to solve the biggest problems in space, aeronautics, defense and cyberspace.

Northrop Grumman operates in the following segments:

  • Aeronautics Systems: Design, development, integration and production of manned aircraft, autonomous systems, spacecraft, high-energy laser systems, microelectronics and other systems and subsystems.
  • Defence Systems: Development and production of small, medium and large caliber ammunition, precision weapons/munitions, high performance gun systems and propellant and energetic materials.
  • Missions Systems: A leader in advanced end-to-end mission solutions and
    multifunction systems for DoD, intelligence community, international, federal-civil and commercial customers.
  • Space Systems: Development and production of small and medium-class satellites for global and regional communications and broadcasting, space-related scientific research and national security.

Northrop Grumman was found in 1994 and is headquartered in Virginia, United States. Northrop Grumman is listed on the New York Stock Exchange, under the symbol ‘’NOC’’.

Financials — Northrop Grumman
(Source: Marketscreener.com, investing.com)

Northrop Grumman’s market cap is $49.4B and stock price is around $301.34.

With a predicted net-income growth of 10.5% for 2020E and 2021E, and a net income estimate for 2021E of in excess of $4.1B, this points to a P/E ratio of 12.3x.

The revenue/sales forecast is $37.4B for 2021E, indicating an EV/Sales ratio of 1.58x.

In terms of profitability, an operating margin of 11.5% is predicted for 2021E. This is higher than some of Northrop Grumans’s competitors; for example, Boeing (BA) has an operating margin of 7.33% for 2021E.

Northrop Grumman is a yielding equity with a yield of 2% for 2021E.

Northrop Grumman (NOC) participates in many high-priority defense and government programs. Their largest customer is the U.S. government. 83% of Northrop Grumman’s revenue comes from the U.S. government.

To date, things are still very uncertain regarding covid-19. Globally covid-19 cases are surging, and some countries are heading for further lockdown conditions. Also, the U.S. presidential elections take place on November 3rd.

The market could expect some volatility along the way, especially companies, trading from a high beta perspective that are cyclical/pro-cyclical. Investors might therefore reduce their risk exposure and looking for safe haven assets/defensive plays.

Northrop Grumman’s beta is relatively low at 0.79. So far, Northrop Grumman’s share price has recovered around 14% from its March low.

According to our analysis, Northrop Grumman (NOC) is showing sustained earnings and revenue growth. Besides that, it’s a yielding equity with a low net-debt level, owning long-term contracts with the U.S. government. As a result, Hatchworks will maintain its position.

The Hatchscore is out 5 of 10. Full details can be found on Hatchnet: www.hatch-net.com/companies

What is Northrop Grumman?
One of American’s leader in the Aerospace & Defence sector with 90,000 employees that aims to solve the biggest problems in space, aeronautics, defense and cyberspace.

Big Investors:

  • Capital Research & Management Co.
  • SSgA Funds Management, Inc.
  • The Vanguard Group, Inc.
  • Wellington Management Co. LLP.

Advisors and Bookrunners:

  • JPMorgan Chase Bank.
  • Wells Fargo.
  • Citibank.

What are the risks?

  • They depend heavily on a single customer, namely the U.S. government. Changes in this could have a negative effect on Northrop Grumman’s operational business.
  • Their business could be negatively impacted by cyber and security threats or other disruptions.
  • Competition within Northrop Grumman markets and bid protests may affect their ability to win new contracts and result in reduced revenues and market share.

Competitors:

  • L3Harris Technologies (LHX).
  • Boeing (BA).
  • BAE Systems (BA).
  • Lockheed Martin (LMT).

Management team:

  • Kathy Warden: Chairman & CEO.
  • Dave Keffer: Vice President & CFO.
  • Marianne Brown: COO.
  • Donald Felsinger: Leader Independent Director.

The Hatchworks Team

The forecast figures are based on the data of Marketscreener.com, and not from Hatchworks: https://www.marketscreener.com/quote/stock/NORTHROP-GRUMMAN-CORPORAT-13763/financials/

Legal Disclaimer — This report summary has been generated as a result of Hatchworks’ proprietary company vetting and filtering system. The level of due diligence conducted on investible assets conducted ranges from mediocre to significant, the latter being the case where Hatchworks has explicitly taken strategic positions in. By no means is the information in this file to be relied on as investment advice; this includes Hatchworks’ algorithmic composite score known as ‘Hatchscore’. Hatchworks has not received any compensation for this research. For more information you can reach us at info@hatchworksvc.com. This report is not for distribution in the United States of America. It is closed to U.S citizens. If you are a U.S. citizen, you should delete this report or return to sender.

Written by

Heading up the group’s R&D activities for Hatchworks.

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