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Northrop Grumman Wins $304M Navy Deal for Triton Aircraft

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Falls Church, VA-based Northrop Grumman Corp.’s (NOC - Free Report) unit, Northrop Grumman Systems Corp., has won a modification contract from the U.S. Navy to procure three low-rate initial production Lot 2 MQ-4C Triton unmanned aircraft.

Details of the Deal

The contract is valued at $303.9 million and has been awarded by the Naval Air Systems Command, Patuxent River, MD.

Per the modification, Northrop Grumman will provide for one main operation control station, one forward operation control station, trade studies, and tooling.

Work is scheduled to be complete by Apr 2021. Majority of the work will be performed in San Diego, CA; while the rest will be executed in various locations within the continental U.S. and Canada. The contract will use fiscal 2016 and 2017 aircraft procurement (Navy) funds.

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 the company 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.

Moreover, Donald Trump’s presidency seems to have created a win-win situation for the Aerospace and Defense companies like Northrop Grumman, Lockheed Martin Corp. (LMT - Free Report) , The Boeing Co. (BA - Free Report) and Huntington Ingalls Industries, Inc. (HII - Free Report) . Evidently, the outlook for stocks in this space has improved manifold in recent months on the back of enhanced spending promises that Trump had made in his latest “America First” budget. A moderate flow of funds from the Pentagon also added to the optimism.

Meanwhile, the fiscal 2017 budget proposal reflected an annual increase of approximately $2.2 billion over the fiscal 2016 budget. Again, the Trump administration has put forward a request for additional fiscal 2017 appropriations of late. Under this appropriation, the White House requested an extra base budget of $24.9 billion and Overseas Contingency Operations (OCO) budget worth $5.1 billion, thereby taking total budget appropriation to $30 billion for fiscal 2017. Moving ahead, we expect the increased spending to be allocated to certain key areas that might unlock significantly higher opportunities for Northrop Grumman.

Price Movement

Northrop Grumman’s stock has gained 15.3% in the last one year, underperforming the Zacks categorized Aerospace–Defense industry’s gain of 20.8%. This could be because higher operating expenses continue to partially impact Northrop Grumman’s profit margin. Moreover, the company may be challenged by economic and political factors. Again, in a highly competitive environment, customers might get attracted to similar products offered by its peers at a lower price, which remains a major concern.

Zacks Rank

Northrop Grumman currently carries a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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