Is Northrop Grumman a buy?

It’s time to dig into a major defense company. Here is the break down on $NOC, otherwise known as Northrop Grumman.

Current Price: $372.60

52/Wk High: $379.03

52/Wk Low: $282.88

Market Cap: $60.0 Billion

Dividend: $1.57 / 1.69% Yield

Read below for the break down!

Northrop Grumman ($NOC) is a major global defense and aerospace company with key areas including missiles, aeronautics, advanced weapons, mission systems, and space.

Breaking the company down by segment, Northrop operates within four core segments; Aeronautics Systems, Defense Systems, Space Systems, and Mission Systems.

In recent news, Northrop Grumman announced a significant 8% quarterly dividend hike, bringing the company’s quarterly dividend to $1.57.

The company also announced in Q1 a major share repurchase agreement and the retirement of $2.2 billion in debt.

Furthermore, the company completed the sale of its IT Services business for $3.4 billion to Veritas Capital. According to management, proceeds from the deal will be used for share repurchases and the pay down of debt.

Northrop Grumman is led by CEO Kathy Warden. Warden took over in 2019 and has worked for Northrop in major management positions since 2008. Warden also held management positions at Veridian Corporation, General Dynamics, and General Electric.

Digging into the numbers, Northrop Grumman beat Q1 2021 expectations with an EPS of $6.57, better than the analysts EPS consensus estimate of $5.48. On a year-over-year basis, EPS improved by 27.57%.

On the sales front, Northrop experienced a 6% sales increase on a year-over-year basis, bringing Q1 2021 sales to a total of $9.2 billion. For reference, the Q1 2020 total sales level was $8.6 billion.

Breaking down sales by segment the Aeronautics Systems segment turned out 5% sales growth, bringing the segment's total sales to a stronger $2.990 billion.

Shifting into the Defense Systems segment, the segment turned out $1.562 billion in sales, representing an unfortunate 17% decline on a year-over-year basis.

Rounding out sales, the Mission Systems segment delivered $2.589 billion in sales, representing 10% year-over-year growth, while the Space Systems segment turned out $2.521 billion in sales, representing 29% growth on a year-over-year basis.

Shifting into operating income, below is a segment by segment break down.

Aeronautics: $308 M (+17% YoY)

Defense: $177 M (-11% YoY)

Mission: $397 M (+12% YoY)

Space: $276 M (+37% YoY)

Overall, total operating income totaled $2.822 billion in Q1, representing a solid 202% jump on a year-over-year basis. For reference, Q1 2020 operating income totaled $934 million.

Earnings continued to expand as well, with net earnings totaling $2.195 billion in Q1, representing a significant improvement over the same time 2020 level of $868 million.

Rounding out the quarter, the backlog totaled $79.3 billion and the company received a whopping $8.9 billion in awards throughout Q1.

Management was upbeat.

“These strong operational results, coupled with portfolio shaping, enabled value-creating capital deployment for our shareholders. Based on our strong first quarter results and solid outlook for the year, we are raising 2021 sales and EPS guidance." Warden said.

Looking to the future, leadership increased guidance, now expecting to end the year with $35.300 billion to $35.700 billion in sales and a segment operating margin of 11.5% to 11.7%.

Shifting into the balance sheet the numbers are solid.

Total Debt: $12.806 Billion

Total Liabilities: $30.898 Billion

Total Assets: $41.423 Billion

Cash & Short Term Inv: $3.517 Billion

On a valuation basis, Northrop does trade at a premium.

Price to Earnings: 13.65x

Forward Price to Earnings: 14.55x

Price to Sales: 1.56x

Price to Book: 5.77x

Price to Cash Flow: 5.98x

Management has been effective.

Return on Equity: 46.11%

Return on Assets: 10.67%

Return on Invested Capital: 13.67%

Given the numbers the analysts are bullish with a mean price target of $391.91/share, representing a solid 5.18% gain.

The high price target is $478.00/share, representing a 28.29% upside, while the low price target is $330.00/share, representing an -11.42% downside.

The big money is quite involved with 81.95% of Northrop Grumman being owned by institutions. Top holders include State Street Global Advisors, Capital International Investors, and The Vanguard Group.

On a technical basis Northrop could be presenting opportunity. According to the six-month charts the MACD is moving with downside momentum within a range of 5.3 down to 4.35.

The six-month charts are also indicating an RSI of 58.56 and CCI of 18.68, both of which are mostly neutral.

On the risk front, investors fear lower defense spending under a Democratic regime and shortages that could create delays.

In short, Northrop Grumman ($NOC) is a solid aerospace defense pick with expanding sales, improving income, a solid balance sheet, and reliable management team.

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Disclaimer: This is not direct financial advice, simply an opinion based on independent research.