Northrop Grumman Corporation (NOC: 55.40 -0.77 -1.37%) won an $80 million U.S. Navy contract to provide infrared missile warning systems (IRMWS) and processors to the Naval Air Systems Command (NAVAIR) for supporting medium and heavy lift helicopter fleets. This equipment will enable the U.S. Navy to conduct theater operations in areas previously inaccessible due to unsafe conditions.Under the terms of the contract, Northrop Grumman will begin delivering more than 450 IRMWS and 90 processors to NAVAIR in May 2011 and conclude in the second quarter of 2013. The equipment is designed to detect missile attacks and defuse the threats with high-intensity lasers. It will be installed on 156 Sikorsky heavy-lift transport helicopter used by the U.S. Marine Corps. Sikorsky family of helicopters is manufactured by United Technologies Corporation’s (UTX: 67.3675 +0.1375 +0.20%).
Northrop Grumman’s strong balance sheet and free cash flows provide substantial financial flexibility and cushions the matter of incremental dividend, ongoing share repurchase and earnings accretive acquisitions. In fiscal 2009 the company generated $1.4 billion in free cash flows from operations.
The company ended the first quarter of 2010, with a low long-term debt-to capitalization of 21.4% (Zacks industry average was 93.2%). Total long-term debt was $3.4 billion along with cash holdings of approximately $2 billion.
Northrop Grumman currently has a high dividend yield of 3.1%. This is higher compared to other large cap defense companies like, General Dynamics Corporation (GD: 60.65 -0.32 -0.52%) and Boeing Company (BA: 64.45 -0.28 -0.43%) who have yields of 2.4% and 2.5%, respectively.
Based in Los Angeles, California, Northrop Grumman provides products, services and solutions in information and services, aerospace, electronics and shipbuilding to the military, government and commercial customers in the United States and beyond.
Northrop Grumman’s success in the competitive defense industry depends upon its ability to develop and market its defense-related products and services to the U.S. Government, as well as its ability to provide people, technologies, facilities, equipment and financial capacity needed to deliver those products and services with maximum efficiency.
We believe that Northrop Grumman is fundamentally a sound company and has a strong market position, but we are cautious about near-term bumps. The company currently is trading at a discount to both the peer group and the S&P 500, based on forward earnings estimates.
The positive case for Northrop Grumman stems from revenue growth across the board, broad diversification of programs, strong order bookings and an order backlog of $67.5 billion at the end of first-quarter 2010.
Northrop’s product line is well positioned in high priority categories such as defense electronics, next-generation ships, unmanned aircraft and missile defense. Revenue and earnings growth continue to be driven by its strong presence in the current focus areas of cyber security, intelligence, surveillance and reconnaissance.
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