Northrop Grumman Corporation is one of the largest U.S. aerospace and defense contractors based on revenue. The company reports four business segments: Aeronautics Systems (aircraft and UAVs), Mission Systems (radars, sensors, and systems for surveillance and targeting), Defense Systems (sustainment and modernization, directed energy, tactical weapons), and Space Systems (missile defense, space systems, hypersonics, and space launchers).
Total revenue was $36,602 million in 2022 and the past twelve months.
According to Stock Rover*, the stock price is down (-19.2%) year-to-date but up +20.5 in the trailing year after adjusting for dividends reinvested. For perspective, the S&P 500 Index was down (-18.1%) in 2022 but up +7.7% YTD. NOC was one of the better-performing stocks in 2022 but is struggling in 2023. The stock price is falling because of high costs related to the B-21, possibly causing a $1.2 billion loss in the program's first five years. In addition, investors fear defense budget cuts are on the horizon with a new Congress.
Northrop Grumman's competitive advantage is its scale, long history as a defense contractor, and classified workforce. Few companies have the size and ability to build aircraft platforms for the U.S. military. Moreover, defense contracting requires knowledge of complex federal contracting and acquisition rules.
The forward dividend yield is around 1.57%, near the 5-year average of 1.60%. Northrop Grumman has increased the dividend for 19 years, making the company a Dividend Contender. The trailing growth rate has been roughly 12% in the past decade. Also, the payout ratio is conservative at ~26% providing confidence about future growth and dividend safety. The subsequent increase should occur in the second quarter.
Source: Portfolio Insight*
Northrop Grumman is trading at a fair value of about 20X and is probably fairly valued. But the company beat estimates last quarter, and the price decline seems overdone.
Disclosure: None
Disclaimer: The author is not a licensed or registered investment adviser or broker/dealer. He is not providing you with individual investment advice. Please consult with a licensed investment professional before you invest your money.