Defense giant Northrop Grumman Corp. (NOC - Free Report) nabbed a Navy contract for the production of Littoral Combat Ship (LCS) gun mission modules. Majority of the work related to this deal will be executed in Portsmouth, VA; Huntsville, AL; Bethpage, NY; and the rest at various locations across the U.S.
Details of the Deal
Valued at $68.8 million, this contract was awarded by the Naval Sea Systems Command, Washington, D.C. However, this contract has a potential value of $812 million, if the options included in this agreement are exercised.
Per the terms of the contract, Northrop will also offer support for basic outfitting assembly installation, interim deport level maintenance, engineering support as well as sustainment. The company will utilize fiscal 2016 and 2017 other procurement ; fiscal 2017 research, development, testing, and evaluation; and fiscal 2017 operations and maintenance appropriation account fund to execute the deal. It expects to complete the work by Jul 2019.
A Brief Note on LCS
LCSs are resilient flexible warships. These vessels can establish and maintain dominance in the near-shore environments (littorals), a critical part of the surface force's ability to provide credible capability for deterrence, sea control, and power projection around the world. Defense primes Lockheed Martin Corp. (LMT - Free Report) and General Dynamics Corp. (GD - Free Report) are the two primary contractors of the LCS.
Gun mission module (GMM) is an integral part of LCS Surface Warfare (SUW) Mission Package used for counter-piracy, maritime interdiction and security missions. GMM consists of advanced ammunition systems that can fire at a rate of 220 rounds per minute to a range of 14km.
Being one of the largest aerospace and defense contractors in the U.S., Northrop’s product line serves high-priority categories such as defense electronics, unmanned aircraft and missile defense.Impressively, a growing list of domestic and international opportunities can be observed across its businesses as well. This includes the Ground Based Strategic Deterrent program, Triton for Australia, SABR Radar for the U.S. Air Force and several international customers. Further, additional international programs are being pursued by its Mission systems and Technology Services segments in Australia and the Middle East.
Such a diverse product portfolio helps Northrop win regular contracts from the U.S. and allied countries. The aforementioned agreement is an example of such contract. Going forward, we expect Northrop to exhibit similar outperformance as it continues to win valuable contracts from the Pentagon as well as the nation’s foreign allies. Such contracts will form the foundation for profitable growth, operating income and margin rate expansion.
In the last one year, Northrop underperformed the Zacks categorized Aerospace/Defense industry, with the company’s gain of 25.1% being lower than the industry’s addition of 25.9%. This might have been led by intense competition from some of the largest defense primes in the U.S., like The Boeing Company (BA - Free Report) , Lockheed Martin and Embraer S.A. (ERJ - Free Report) . Also, the current quarter EPS estimates for the company have declined 3.7% over the past 60 days, which reflects investors’ reluctance to consider the stock as a suitable investment option.
Northrop currently carries a Zacks Rank #3 (Hold). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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