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Northrop Grumman Corporation (NOC - Analyst Report) has received a firm-fixed-price follow-on production contract worth $11.5 million from the U.S. Naval Air Systems Command (“NAVAIR”) for the fabrication, testing and delivery of AN/UPX-24(“V”) interrogator sets for their Aegis combat ships.

AN/UPX-24(V) consists of a control monitor, a central processor-controller and up to 22 control indicators, which help to recognize friendly aircrafts rapidly and precisely. The AN/UPX-24(V) accepts transponder replies and provides target reports to a shipboard weapon system. Besides providing target data to the ship's command, control, communications, computer and intelligence system, AN/UPX-24 generates interrogation commands in response to the requests for priority target identification.

Per the contract, Northrop will provide five AN/UPX-24(V) identification friend or foe (“IFF”) processor sets in an open-architecture pattern to improve the situational alertness and detection of threat capabilities of naval ships. The production system deliveries are expected in the first quarter of 2014.

The AN/UPX-24(V) interrogator set, an important element of the AN/UPX-29(V) shipboard interrogator system, is a major subsystem. The primary function of the subsystem is to provide centralized identification system for ships, which help to determine whether aircraft or ships equipped with IFF transponders are friends or foes.

Northrop Grumman is a leading global security company providing innovative systems, products and solutions to aerospace, electronics, information systems, and technical services to government and commercial customers worldwide. The company 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. Moreover, the company’s growth is supported by favorable projected revenue, diversified revenue and earnings streams.

However, 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.

Like its peers Embraer SA (ERJ - Analyst Report) and General Dynamics Corporation (GD - Analyst Report), the company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

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