Northrop Wins $140M Airborne Communication Device Deal

Defense giant Northrop Grumman Corp. (NYSE:NOC) recently secured a modification contract for Battle Field Airborne Communication Node (BACN) payload, operations and support. Work related to this deal is expected to be over by Jan 23, 2018.

Valued at $140 million, this contract was awarded by the Air Force Life Cycle Management Center, Hanscom Air Force Base, MA. Work will be carried out at San Diego, CA, along with multiple international locations. Northrop will utilize fiscal 2017 overseas contingency operation as well as operation and maintenance funds to close this agreement.

A Brief Note on BACN

Northrop’s BACN facilitates persistent communication ranging from small ground units to the highest command levels in battlefield. BACN, combined with the company’s Global Hawk unmanned surveillance aircraft, provides fighters with essential information.

BACN’s Airborne Executive Processor (AEP) facilitates seamless communication among all participants in a battle. Integrating BACN into Global Hawk has optimized the communication capabilities by exploiting the operational flexibility and economic endurance of the platform. Global Hawk makes BACN available to support the warfighter 24/7.

Our View

We believe that the company has significant upside potential based on the U.S. government’s increased focus on Intelligence Surveillance Reconnaissance (ISR), unmanned systems, force protection, cyber security and missile defense.

Meanwhile, a rapid rise in terror attacks compelled the U.S. government to raise its defense budget substantially in 2016, which has led to the modernization of tactical equipment and modification of the existing ones. The increased spending would be allocated to certain key areas that can unlock significantly higher opportunities for Northrop.

In addition, the victory of Donald Trump bodes well for aerospace and defense sector companies like Northrop Grumman, Lockheed Martin Corp. (NYSE:LMT) , The Boeing Co. (NYSE:BA) and Huntington Ingalls Industries, Inc. (NYSE:HII) as it has lifted expectations of increased military spending. A moderate flow of funds from the Pentagon added to the optimism.

Price Movement

Northrop gained about 26.1% in the last one year, outperforming the Zacks categorized Aerospace-Defense industry’s gain of 23.5%. On an average, the company posted a positive earnings surprise of 8.29% for the trailing four quarters. This might be because of Northrop’s business restructuring in order to focus on space and airborne ISR, which helped yield significant benefits. Moreover, the company continues to witness a steady flow of contracts from the Pentagon and other international customers.

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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