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Northrop (NOC) Gets $18.6M Deal to Produce Torpedo for Navy

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Northrop Grumman Corporation (NOC - Free Report) has secured a contract for producing array kits, production support material, related engineering and hardware repair services for MK 54 Mod 0 lightweight torpedo. The contract has been awarded by the U.S. Navy and is worth $18.6 million. The navy also awarded a $35-million contract for the same to Raytheon Company (RTN - Free Report) recently.

Out of the total contract, 84% is for the Navy. The rest is for U.K. and Thailand — 11% and 5%, respectively, under the Foreign Military Sales (“FMS”) program. Per the contract, 40% of the related work will be carried out at the company’s Lititz, PA facility and the rest will be done at Annapolis, MA (30%) and Salt Lake City, UT (30%). Operations are expected to be concluded by November 2018.

A Brief Note on MK 54

MK 54 Mod 0 is an anti-submarine torpedo used by the Naval forces. This torpedo is designed to be deployed from a surface ship, helicopter or fixed wing aircraft. The missile can track, classify and attack underwater targets. It was co-developed by Raytheon’s Integrated Defense Systems and the U.S. Navy.

Northrop Grumman's Expansion Plans

Northrop Grumman recently announced that it will acquire Orbital ATK for $7.8 billion in cash and the assumption of $1.4 billion in net debt. Currently the acquisition is subject to regulatory approvals. With the acquisition of Orbital ATK, Northrop Grumman will benefit from the former's rocket motors, missiles and electro-optical countermeasure product lines. (Read More: Northrop Grumman Announces Orbital ATK Buyout for $9.2B).

Diverse Product Offering

Northrop benefits from a strong presence in Air Force, Space & Cyber Security programs. The company’s product innovation and focus on strengthening its ISR wing will help maintain a stable earnings stream amid rapidly changing requirements of the defense landscape. As one of the largest domestic defense contractors, the company receives regular orders from the various verticals of U.S. Defense. It also receives orders from the international market through foreign military sales (“FMS”). Its international market accounted for 13.1% of its business in 2016.

Development in Defense Space

Rising terror activities and current tension between the United States and North Korea have added to the growth of the industry. The country, along with its major allies has been strengthening their defense from internal and external threats.

On this note, the U.S. Senate recently passed fiscal 2018 defense policy bill worth $700 billion, which was proposed in July 2017. This bill provides about $640 billion for Pentagon’s main operations like buying weapons and paying the troops. The rest $60 billion for Overseas Contingency Operations will be utilized to fund the conflicts in Afghanistan, Iraq, Syria and elsewhere. Therefore, the current scenario in the defense industry is expected to further aid large companies like Northrop, Raytheon, Lockheed Martin Corporation (LMT - Free Report) .

Price Movement

Shares of Northrop Grumman have increased 5% since Northrop Grumman's announcement of Orbital ATK acquisition, compared with the industry’s gain of 3% during the same time.

This shows that the news of the acquisition has received positive response from the market.

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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