Northrop Grumman Corporation ( NOC - Analyst Report ) received a contract from the U.S. army to provide SCORPION and SCORPION II Unattended Ground Sensor (UGS) systems. Under the terms of this indefinite delivery, indefinite quantity contract, Northrop Grumman will provide SCORPION and SCORPION II wired and wireless UGS systems and support services over a five-year period. Northrop Grumman's SCORPION UGS systems have been deployed worldwide. The primary function of SCORPION is to provide persistent surveillance for situational awareness, remote area monitoring and perimeter security.

SCORPION II is the next generation of persistent autonomous surveillance systems for force protection and intelligence gathering. The systems use seismic, magnetic and passive infrared sensors to cue long range, short range and point blank-range thermal or day cameras to detect and assess potential threats. SCORPION II combines wireless day and night imagery performance with significantly reduced size and weight, making portability and concealment faster and safer. It also requires lower power consumption and has a longer mission life.

Los Angeles-based Northrop Grumman Corporation is one of the largest defense contractors in the U.S. The company supplies a broad array of products and services to the U.S. Department of Defense (DoD), including electronic systems, information technology, aircraft, space technology and systems integration services.

Northrop Grumman 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, these are 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 Afghanistan and Iraq operations.

The positive case for Northrop Grumman stems from revenue growth across the board and a broad diversification of programs. The company’s backlog is expected to see further upside in the near future through unmanned aerial vehicle (UAV) platforms, including Broad Area Maritime Surveillance (BAMS), Fire Scout and Navy Unmanned Combat Air System (UCA).

Northrop Grumman’s total order backlog at the end of fiscal 2011 stood at $39.5 billion compared with $46.8 billion at fiscal-end 2010. The lower trend in order backlog is expected to continue in 2012 as some of the prominent programs of the company like the Global Hawk and the F-35 Joint Strike Fighter are coming under the scanner of U.S. budget cuts. Thus the quantitative Zacks # 4 Rank (short-term Sell rating) for the company indicates downward directional pressure on the shares over the near term.

We however maintain our long-term ‘Neutral’ recommendation on Northrop Grumman. This is in line with its peers like General Dynamics Corporation ( GD - Analyst Report ) and Lockheed Martin Corporation ( LMT - Analyst Report ) .