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Northrop Announces $2B Accelerated Share Repurchase Agreement

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Northrop Grumman Corporation (NOC - Free Report) recently announced an accelerated share repurchase (ASR) agreement with Goldman Sachs & Co. LLC, a subsidiary of The Goldman Sachs Group, Inc. (GS - Free Report) , for $2 billion of Northrop’s common stock.

Under the ASR agreement, Northrop Grumman will receive initial deliveries of approximately 5.9 million shares on Feb 2, representing 85% of the expected share repurchases based on the company’s closing price of $286.61, as on Jan 29, 2021.

The final number of shares to be repurchased will be based on Northrop Grumman’s volume-weighted average price during the term of the transaction, which is expected to be completed in the second quarter of 2021.

Recent Share Repurchase Authorization by Northrop

In January 2021, Northrop Grumman’s board of directors authorized a new share repurchase program of up to an additional $3 billion of the company’s common stock, reaching the total outstanding authorization to $5.8 billion.

Solid Financial Backing Share Repurchases

Northrop Grumman has been repurchasing shares at a brisk pace and that should give its shareholders every reason to invest in the stock. Notably, the company’s strong balance sheet and steady cash flow position offer substantial financial flexibility and scope for significant share repurchases.

At the end of 2020, the company’s cash and cash equivalents totaled $4,907 million, reflecting an improvement of 118.6% when compared to $2,245 million at the end of 2019. Further, in 2020, Northrop Grumman’s cash inflow from operating activities amounted to $4,305 million, up 0.2% from 2019-end. Notably, the company returned $490 million to shareholders in common stock repurchases in 2020, led by strong operational performance.

Evidently, such solid cash generating capabilities must have made Northrop Grumman’s management confident enough to raise its share repurchase authorization amount and also the latest ASR agreement.

Price Performance

Shares of the company delined 17.1% in the year, compared with the industry’s 25.3% decline.

Zacks Rank & Key Picks    

Northrop Grumman currently carries a Zacks Rank #4 (Sell).

A few better-ranked stocks in the same sector are Leidos Holdings (LDOS - Free Report) and Transdigm Group Incorporated (TDG - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Leidos has an average positive earnings surprise of 17.57% for the last four quarters. The Zacks Consensus Estimate for 2021 earnings has moved up 0.5% to $6.40 in the past 60 days.

Transdigm Group delivered an average positive earnings surprise of 37.24% in the last four quarters. The Zacks Consensus Estimate for 2021 earnings has climbed 0.5% to $11.91 in the past 60 days.

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