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Northrop Grumman Inks $255M Navy Deal for MQ-4C Triton

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Defense prime Northrop Grumman Corp.’s (NOC - Free Report) business unit, Systems Corp. recently won a modification contract from the U.S. Navy for low-rate initial production (LRIP) of MQ-4C Triton unmanned aircraft. Valued at $255.3 million, the contract was awarded by the Naval Air Systems Command, Patuxent River, MD.

Details of the Contract

Work is scheduled to be complete by Aug 2020. The majority of the work will be performed in San Diego, CA, while the rest will be carried out in Baltimore, MD; Palmdale, CA; and in various locations across the U.S. The contract will use fiscal 2016 aircraft procurement (Navy) funds.

The original LRIP deal involved the purchase of three MQ-4C Triton unmanned planes, one main operation control station and one forward operation control station, training courseware, and tool by the Navy. This recent decision marks the beginning of the production and deployment phase of the Navy’s acquisition process.

Qualities of MQ-4C Triton

MQ-4C Triton is a new broad area maritime surveillance (BAMS) unmanned aircraft system (UAS) produced by Northrop Grumman for the Navy. The Pentagon awarded Northrop a contract worth $1.16 billion for the MQ-4C BAMS program in Apr 2008 and the first MQ-4C was unveiled in Jun 2012.

The MQ-4C is a high-altitude, long-endurance UAS suitable for conducting a range of missions such as maritime surveillance, battle damage assessment, port surveillance and communication relay. It can offer persistent maritime surveillance and reconnaissance coverage of wide oceanographic and littoral zones at a mission radius of 2,000 nautical miles. The UAS can fly 24 hours a day, seven days a week, with 80% effective time on station (ETOS).

Our View

Being the fourth-largest U.S. defense contractor, Northrop Grumman supplies a broad array of products and services to the U.S. Department of Defense, including defense electronics, unmanned aircraft and missile defense. The company continues to see strong demand for its unmanned air systems on a global scale.

With regard to the company’s Aerospace Systems business segment, per management, Northrop has recently reached an inflection point wherein its new programs and the planned ramp-ups on production programs are beginning to outpace declines in mature legacy programs. We believe this has been reflected in the aforementioned deal.

Going ahead, we expect these developments to fetch a handsome upside in backlogs for Northrop’s Aerospace Systems segment, which already enjoys a strong backlog per the company’s latest results.

Zacks Rank & Stocks to Consider

Northrop currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the aerospace and defense sector include Engility Holdings, Inc. , General Dynamics Corp. (GD - Free Report) and Ducommun Inc. (DCO - Free Report) .

Engility has witnessed a 4.2% rise in its last five days’ stock price. On average, the company delivered a positive earnings surprise of 12.09% in the trailing four quarters. The company sports a Zacks Rank #1 (Strong Buy). You can see the complete list of today’s Zacks #1 Rank stocks here.

Ducommun, sporting a Zacks Rank #1, has witnessed a 2.2% rise in its last five days’ stock price. The company’s current year consensus estimate improved 9.4% in the last 60 days.

General Dynamics carries a Zacks Rank #2 (Buy) and has witnessed a 1.8% gain in its last five days’ stock price. The company’s current year consensus estimate improved 9.4% in the last 60 days.

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