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Despite the current stalemate in the U.S. economy, which has restricted defense contract flows, Northrop Grumman Corp. (NOC - Analyst Report) emerged as one of the key winners. Northrop’s shares inched up 1.37% to close at $98.68 on Oct 16, 2013 thanks to the company’s foreign military sales contract win from the French government.

The $34 million contract awarded via the U.S. Navy involves modernizing military hardware which includes the installation of AN/APX-122A IFF Mode 5/Mode S Interrogators and AN/APX-123 IFF Mode 5/Mode S Transponders on board three French navy E-2C "Hawkeye" airborne early warning aircraft.

The mode transponders provided by Northrop will enhance the aircraft’s Identification Friend or Foe ("IFF") system and will improve communications with the U.S. Navy’s E-2D Advanced Hawkeye aircraft. The IFF technology allows aircraft to identify friendly forces thereby preventing any casualties from friendly firings.

Apart from the U.S., France is the only country which operates E-2C Hawkeye from an aircraft carrier. The long-standing operational collaboration between the U.S. and France has ensured the relevancy of the multimission E-2 Hawkeye platform in battle. The joint effort has contributed to constant technological developments of the E-2 Hawkeye which has optimized its reliability and capability.

Northrop has been the one of the few contractors to effectively counter the sequestration. In late Sep 2013, the company scored ten contracts from the Department of Defense worth $1.28 billion.

In addition, Northrop is devoting its efforts to capitalize on the rising demand for defense products, especially in the Middle East and the Asia-Pacific markets. Recently, Northrop expanded its footprint in Australia through multiple acquisitions and strategic partnerships.  

We believe these endeavors will likely keep the company’s top line stable in the coming years. Currently, Northrop carries a Zacks Rank #2 (Buy).

Besides Northrop, other well-placed defense operators are Zacks Ranked #2 Lockheed Martin Corp. (LMT - Analyst Report), Erickson Air-Crane Inc. (EAC - Snapshot Report) and B/E Aerospace Inc. (BEAV - Snapshot Report).

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