Northrop's In-Service Support for MK-49

Northrop Grumman Corporation (NOC - Analyst Report) has received a five-year contract worth $12.1 million from Public Works Government Services Canada. As per the contract, the company will have to provide in-service support for the MK-49 inertial navigation systems and navigation data distribution systems installed aboard surface ships and submarines of the Royal Canadian Navy.

Apart from three land-based systems, the in-service support task will be for systems installed on 12 Halifax-class frigates, three Iroquois-class destroyers, four Victoria-class submarines and two Protecteur-class auxiliary oiler replenishment ships. This contract from Canada's Department of National Defense (“DND”) includes material spares and software maintenance for the systems.

The MK-49 inertial navigation system depends on Northrop’s unique ring-laser gyro technology that provides highly accurate position, attitude, velocity and heading inputs to the ships' navigation and fire-control systems for ensuring stabilized weapons initialization under all sea conditions. Northrop, being a world leader in ring-laser gyro technology, is best suitable for the system. It supplies the standard ring-laser gyro equipment used on NATO ships.

Since 2001, this is the fourth in-service support contract received by Northrop from DND. Per the previous contracts, the company had designed and delivered the MK-39 inertial navigation system, the SRD 331 Speed Log and related software to Canada. With each contract, the company has been fulfilling and reducing the DND's need to maintain spares and support services.

Recently, in October Northrop had received a contract from Cessna Aircraft Company to provide gyro-compassing, hybrid inertial navigation systems as core components of the avionics system for the 680 Citation Sovereign business jet aircraft. This indicates that Northrop’s product line is well positioned in high priority categories, such as defense electronics, unmanned aircraft and missile defense. Moreover, going forward, revenue and earnings growth continue to be driven by its strong presence in the current focus areas of cyber security, modernization of defense and homeland security assets, intelligence, surveillance and reconnaissance (ISR) systems, advanced electronics and software development.

However, 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 remain matters of concern.

Like Lockheed Martin Corporation (LMT - 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.

Northrop Grumman is a leading global security company that provides innovative systems, products and solutions in unmanned systems, cybersecurity, C4ISR, and logistics and modernization to government and commercial customers worldwide.