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Northrop Grumman's Unit Wins Ship Navigation System Deal

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Defense major Northrop Grumman Corporation’s (NOC - Free Report) business unit, Northrop Grumman Systems Corp., recently secured a modification contract worth $11 million, in relation to the Navy’s WSN-7 navigation system. Work related to the deal is scheduled to be over by April 2019.

The contract was awarded by the Naval Sea Systems Command, Washington, D.C. Per the terms of the modification, the company will exercise a one-year option for production and supply of associated provisioned items of WSN-7 navigation system. Work will be carried out in Charlottesville, VA. Northrop Grumman will utilize fiscal 2017 shipbuilding and conversion (Navy) funds and fiscal 2017 other procurement (Navy) funds to finance the task.

A Brief Note on WSN-7 Navigation System

The Inertial Navigation System (INS) AN/WSN-7 is a passive shipboard navigation system, deployed in the U.S. Navy ships, to calculate and indicate ship's position, attitude, heading and velocity in relation to the earth's rotation. The INS senses motion (inertial), gravity and earth rotation and helps in navigation functions.

Additionally, the INS receives GPS updates and the ship's speed. The system is capable of operating throughout the world without any external position reference information. Per the U.S. Navy, the INS is unsusceptible to jamming and cannot be also detected by the opposition.

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. Its Mission Systems business segment provides services relation to navigation systems.

During the second quarter of 2017, this segment witnessed 3% revenue growth, courtesy of higher sales volume. Going ahead, for 2017, the company raised its sales outlook for the segment on the anticipation of success in the coat-reduction initiatives that management undertook as well as solid sales volume, in particular for F-35 jets.

Notably, the company has a strong presence in Air Force, Space & Cyber Security programs which have aided it in securing regular contracts from different verticals of U.S. Defense. We believe winning contracts like the recent one will help Northrop Grumman in achieving its enhanced sales target for Mission Systems.

Price Performance

Shares of Northrop Grumman have returned 26.2% in the last year compared to the industry’s increase of 36.1%. This might have been led by the company’s escalating operating expenses.

In addition, steep competition from peers like Lockheed Martin Corp. (LMT - Free Report) , The Boeing Company (BA - Free Report) and General Dynamics Corporation (GD - Free Report) 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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