Northrop (NOC) Wins $179M Deal To Supply LAIRCM's Hardware

Defense giant Northrop Grumman Corp.’s (NYSE:NOC) unit, Systems Corp., recently secured a modification contract from the Air Force Life Cycle management Center, Wright-Patterson Air Force Base, OH. Per the terms, the company will provide hardware for large aircraft infrared counter measures (LAIRCM) and necessary support related to it. Work related to the deal is expected to be over by Apr 30, 2019.

Details of the Deal

The contract is valued at $179 million. Work will be performed in Rolling Meadows, IL. The deal includes foreign military sales (FMS) to Australia, Canada, Saudi-Arabia and Strategic Airlift Capability/NATO Airlift Management Program.

Northrop will utilize fiscal 2015, 2016 and 2017 procurement; operations and maintenance; research, development, test, and evaluation; National Guard; and overseas contingency operations funds to complete the work.

What’s LAIRCM?

The LAIRCM system is an active countermeasure that can automatically detect a missile launch. It is essential and critical for the safety of onboard troops in a hostile situation. On identifying a missile, LAIRCM determines if it is a threat and activates a high-intensity, laser-based countermeasure system to track and destroy the missile on its own, with no action required by the crew. The primary purpose of the program is to protect large aircraft from man-portable missiles.

Of late, terrorist groups have been increasingly using cheap yet deadly man-portable missiles. Thus, an effective anti-missile solution for the protection against such threats is the need of the hour and a well-equipped, developed nation like the U.S. will always want to be well prepared for any sudden assault.

What’s Favoring Northrop?

Currently, Northrop’s AN/AAQ-24(V) Directional Infrared Countermeasure (DIRCM) system is the only DIRCM system in production that can protect an aircraft from infrared-guided missiles. LAIRCM is one of its variant. At present, Northrop’s DIRCM laser-based systems protect more than 750 aircraft, including large and small fixed-wing, rotary-wing, and tilt-wing platforms.

With increasing threat of missiles in recent times, up-to-date radar systems that can accurately detect such missiles and warn beforehand are the need of the hour. Toward this end, Northrop has reinforced its LAIRCM system with new technologies to neutralize threats and lower the overall handling costs for the U.S. Department of Defense (DoD).

Along the same product line, the company continues to support Lockheed Martin Corp. (NYSE:LMT) in upgrading F-16s with its SABR radar. The company has also started delivery of these radars since last year to the U.S.’ allied nations, which, in turn, has opened up a wide burgeoning international market for its expansion. Currently, Northrop is jointly upgrading the F-16 radars with the U.S. Air Force, to support the NORTHCOM Joint Urgent Operational Need.

The aforementioned developments indicate that the combat-proven radar systems of Northrop, which already enjoy notable demand from the U.S. and allied nations’ armed forces, will allow the company to win more contracts, like the recent one from Pentagon, in the coming days. This, in turn, will substantially boost the company’s revenue growth, with the current U.S. administration being in favor of escalated defense spending.

Price Performance

Northrop’s stock has returned 14.6% in the last one year, underperforming the Zacks categorized Aerospace–Defense industry’s gain of 24.8%. This could be because higher operating expenses continue to partially impact the company’s profit margin. Moreover, Northrop faces stiff competition from other defense majors like The Boeing Company (NYSE:BA) and General Dynamics Corp. (NYSE:GD) .

Zacks Rank

Northrop currently holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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