Northrop Grumman Corporation (NOC - Analyst Report) has received a total of three contracts − two modifications and one fresh − from the U.S. Department of Defense (DoD). The total deal was valued at $55.5 million.
Under the first modification contract, worth $24.5 million, the company will boost the ceiling value on a previously awarded cost-plus-incentive-fee, firm-fixed-price Ground/Air Task-Oriented Radar (G/ATOR) Engineering contract from the U.S. Marine Corps. This is mainly intended to cover the expected rise in costs and pay for the manufacturing development phase. Of the total amount, $21.1 million is allotted for the engineering and manufacturing development phase, while the remaining $3.4 million for production engineering support.
G/ATOR is a new mobile, three-dimensional, short-to-medium-range tactical radar system being developed by the U.S. Marine Corps. It is intended to provide the Marines with improved capabilities to detect, track, and provide target quality data to engage hostile aircraft, cruise missiles, unmanned air vehicles, rockets, mortars, and artillery. It will also provide dynamic air traffic control capabilities to increase the safety of Marine Corps air operations. Northrop's work on this phase of the contract is expected to be completed by Apr 25, 2014.
The second modification contract calls for Northrop to supply engineering and production planning services for mission packages that will be deployed from and integrated with the littoral combat ship. This $19.4 million worth modification contract is slated to be completed by the middle of next year.
The company won an $11.6 million new fixed-price indefinite-delivery/indefinite-quantity (IDIQ) contract in order to manufacture, test, integrate, qualify and deliver an improved version of laser configuration. This is to be used in the Electro-Optical Third Generation Console for Advanced Targeting Forward Looking Infrared (FLIR) systems. This system will be installed on the U.S. Navy’s F/A-18 E/F fighter jets and SH-60 Seahawk helicopters. Initially Northrop will provide the Navy with two prototype units of the upgraded laser and subsequently it will supply 102 upgraded units for installation. Work is expected to be wrapped up by Jun 2016.
Northrop has a long-standing business association with the U.S. defense establishments. The company is flooded with a number of contracts from several government establishments. It had a total backlog of $39.4 billion at the end of first-quarter 2013. In May 2013, Northrop won a contract, worth $555.6 million, from the DoD to upgrade the Global Hawk.
The company’s backlog will likely see further upside in the near future through its strong focus areas of cyber security, modernization of defense and homeland security assets, intelligence, surveillance and reconnaissance systems, advanced electronics and software development. Additionally, the proposed 25% increase in Northrop’s funding in the 2014 budget would encourage future opportunities.
Northrop currently has a Zacks Rank #2 (Buy). Other stocks in the sector that also appear promising include Erickson Air-Crane Inc. (EAC - Snapshot Report), The Boeing Company (BA - Analyst Report) and Wesco Aircraft Holdings, Inc. (WAIR - Snapshot Report). While Erickson retains a Zacks Rank #1 (Strong Buy), Boeing and Wesco Aircraft carry a Zacks Rank #2 (Buy).