Northrop Clinches Foreign Arms Deal

Northrop Grumman Corporation ( NOC - Analyst Report ) has landed with an $88 million contract for foreign radar sales. Per the contract, Northrop will sell 43 radar systems for fighter planes to Thailand, Iraq and Oman during the next three years.

Recently, Lockheed Martin Corporation ( LMT - Analyst Report ) received a contract to produce two Terminal High Altitude Area Defense Weapon Systems for the United Arab Emirates. In December 2011, The Boeing Company ( BA - Analyst Report ) had entered into a contract with Saudi Arabia to supply 84 new F-15 fighter jets and upgrade 70 existing aircrafts. In July 2011, General Dynamics Corporation ( GD - Analyst Report ) along with Honeywell International Inc. ( HON - Analyst Report ) and Allison Transmission Holdings Inc. ( ALSN - Snapshot Report ) had received a key contract to provide Egypt with 125 armed battle tanks.

The latest trend shows that sales of military weapons to foreign countries have risen dramatically. The Department of Defense (DoD) has ramped up foreign military sales to Middle Eastern countries that can protect U.S. interests and maintain peace in that region so crucial to the global economy. Thus, nations like Saudi Arabia, UAE, Egypt, Iraq, Pakistan and Turkey are the top buyers in foreign military sales deals.

The other allies that are buying military hardware from the U.S. are Poland, Japan and Israel. The overall growth in overseas arms sales bodes well for the U.S. defense primes given the looming cuts in the U.S. defense budget.

Northrop Grumman nevertheless offers a strong program portfolio positioned to take advantage of focus areas in the defense space, an improving balance sheet and an ongoing share repurchase program. However, currently this will be offset by apprehension regarding defense cutbacks on high-cost platform programs, over-exposure to the DoD budget, lower backlog, cost over-runs and reductions in the Afghanistan and Iraq operations.

The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

Los Angeles-based Northrop Grumman Corporation supplies a broad array of products and services to the U.S. DoD, including electronic systems, information technology, aircraft, space technology, and systems integration services.