Northrop Grumman's Unit Wins $117M Contract From U.S. Army

Northrop Grumman Corp.’s (NYSE:NOC) unit, Northrop Grumman Systems Corp., has secured a contract to offer logistics support services for government-owned fixed wing fleet performing special electronic mission aircraft missions.

Details of the Deal

The contract, which is valued at $116.9 million, has been awarded by the U.S. Army Contracting Command, Redstone Arsenal, AL.

Work is scheduled to be completed by Feb 28, 2027, and will be performed in Herndon, VA. The deal will use fiscal 2017 operations and maintenance (Army) funds.

Our View

Being the fourth-largest U.S. defense contractor, Northrop Grumman supplies a broad array of products and services to the U.S. Department of Defense, including defense electronics, unmanned aircraft and missile defense. In addition, this Falls Church, VA-based company continues to witness strong demand for its unmanned air systems on a global scale.

Meanwhile, Donald Trump’s presidency seems to have created a win-win situation for the Aerospace and Defense majors like Northrop Grumman, Lockheed Martin Corp. (NYSE:LMT) , The Boeing Co. (NYSE:BA) and Huntington Ingalls Industries, Inc. (NYSE:HII) . Evidently, the outlook for various stocks in this space has improved manifold in the past months on the back of enhanced spending promises that Trump had made in his latest America First budget.

Specifically, the fiscal 2017 budget proposal reflected an annual increase of approximately $2.2 billion more than the year-ago budget. Again, the Trump administration’s request for additional fiscal 2017 appropriations included an additional base budget of $24.9 billion and Overseas Contingency Operations (OCO) budget worth $5.1 billion.

The proposed budget hike for fiscal 2018 by President Trump reflected a 10% increase more than the current base budget level, hinting at the U.S. government to spend more on defense.

Also, the U.S. House of Representatives passed the 2018 defense policy bill recently, reflecting an expenditure level of $696 billion. It exceeded President Trump’s defense budget request proposed this March.

If enacted, all these budgetary updates will immensely boost business growth of all the defense giants including Northrop Grumman. A moderate flow of funds from the Pentagon further added to the optimism.

Going forward, we expect the increased spending to be allocated to certain key areas that might unlock higher opportunities for Northrop Grumman.

Price Movement

Northrop Grumman’s stock has rallied 27.6% in the last year, underperforming the industry’s gain of 39.9%. The downturn was owing to higher operating expenses that continue to partially impact the company’s profit margin. Also, Northrop Grumman may be challenged by economic and political factors. Furthermore, in a highly competitive environment customers might get attracted to similar products offered by its peers at a lower price, which is a major concern.

Zacks Rank

Northrop Grumman currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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