Summary
- Northrop Grumman has broken out of an 18-month base, and has put in a new weekly all-time closing high.
- The company has strong earnings trend, with 15% growth in annual earnings per share projected for FY-2020.
- I believe that any pullbacks in the stock will likely be bought, and would not be surprised to see the stock over $410.00 next year.
While the Aerospace & Defense Industry has had a rocky year since news of Boeing's (BA) 737 MAX issues, Northrop Grumman (NOC) has been the leader among the sector. The stock powered to a new all-time high last week, and continues to have a strong earnings trend with earnings per share expected to grow 9% in FY-2019, and accelerate to 15% in FY-2020. This strong performance has been helped by their $7.8 billion acquisition of Orbital ATKlast year, renamed Innovation Systems once integrated into Northrop Grumman's portfolio.
Northrop Grumman's backlog is up 18% to $63 billion as of the end of Q2, and the company has seen $28.5 billion year-to-date in net awards. Based on the company's strong earnings trend and the stock's robust technical picture, I believe any dips in the stock will provide low-risk entries. Ultimately, I would not be surprised to see the stock head over the $410.00 level next year.
Northrop Grumman reported its earnings in late July, and results were exceptional, with quarterly earnings per share [EPS] up 43% year-over-year. The company's backlog at the end of Q2 is 20% higher than last year, currently sitting at $63.0 billion vs. $52.2 billion at the same time last year. This should contribute to long-term sustainable growth, and can be attributed to strength across all segments. Just ten years ago, the company's first E 2-D flight from Florida, the company continues to see strong demand for the aircraft. Northrop delivered its first E-2D aircraft to Japan, and the company booked a $3 billion U.S. Navy order for twenty-four of the E 2-D Early Warning aircraft in Q2. The E 2-D Advanced Hawkeye is a game-changer in battle management for the Navy, including an Advanced Identification Friend or Foe System, and a new All Glass Tactical Cockpit.
(Source: Defence-Blog.com)
In addition to strength in bookings across Aerospace Systems, Northrop has also seen strength in Innovations Systems (previously Orbital ATK). The company saw $3 billion year-to-date in net awards. Not only is the company supporting hypersonic weapons system development for the U.S. government, but they are also supporting both the Lockheed Martin (LMT) and Raytheon (RTN) program. Finally, Space Norway awarded Innovation Systems a $250 million contract for its Arctic Satellite Broadband Mission. This contract is to provide ground infrastructure, and to design, manufacture and integrate two satellites.
