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Northrop Grumman (NOC) Secures Deal to Supply C-130J RTP

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Northrop Grumman Corp.’s (NOC - Free Report) subsidiary, Northrop Grumman Systems, recently secured a contract worth $15.4 million for delivering C-130J receiver transmitter processors (RTP). Work related to this deal is expected to get completed by Aug 1, 2021.

The contract was awarded by the Defense Logistics Agency Aviation, Robins Air Force Base, Georgia. Northrop Grumman will utilize fiscal 2018 Air Force working capital funds to execute the task at Georgia.

A Brief Note on C-130J

The C-130J Hercules is a medium-sized tactical transport airlift aircraft manufactured by Lockheed Martin (LMT - Free Report) . It is capable of performing a variety of combat delivery (tactical airlift) operations across a broad range of mission environments. These include the deployment and redeployment of troops, supplies within command areas in a theatre of operation, aero-medical evacuation, air logistics support and augmentation of strategic airlift forces. With an extended fuselage, the C-130J aircraft provides additional cargo carrying capacity for the Air Force combat delivery mission compared with the legacy C-130E/H and the C-130J (short) aircraft.

What’s Favoring Northrop Grumman?

Northrop Grumman is a prime defense contractor in the United States. It is well known for supplying combat-proven radar systems that get mounted onnotable aircraft platforms of the U.S. Air Force. With receiver/transmitter processors (RTP) forming an integral part of such radar systems, incorporating the same in the widely used C-130J aircraft should enhance the performance level of such jets.

Moreover, the company has been gaining increased tractions in its radar business lately. In this context, it is imperative to mention the notable investments that Northrop Grumman has made in Gallium Nitride (GaN), which further helps in amplifying radio energy for radars, jammers and other devices. Such investments help the company in delivering more effective and highly resistant radar solutions, thus boosting the top line. Evidently, Northrop Grumman’s Mission Systems (MS) unit, which develops various sensors and processors, delivered a solid top line of $2.87 billion in second-quarter 2018.

Considering the fact that Lockheed Martin has 64 C-130J aircraft in its backlog as of Dec 31, 2017, with advanced funding from customers for additional C-130J jets, we can expect Northrop Grumman to win more such contracts from the Pentagon for delivering its RTP for the fleet of C-130J. This, in turn, should enable the company’s MS unit to deliver better top-line performance in coming days.

Meanwhile, in June 2018, the U.S. Senate approved the fiscal 2019 defense budget that includes an investment plan of $13.7 billion in matters pertaining to science and technology. Considering such favorable budgetary revisions and the U.S. government’s increased focus on cyber, command, control, communications and computers, intelligence, surveillance and reconnaissance (C4ISR) programs, we expect Northrop Grumman to win more radar-related contracts in days ahead.

Price Performance

In a year’s time, shares of Northrop Grumman have rallied about 9.6% compared with the industry’s 21.8% growth. The underperformance may have been caused by the intense competition that the company faces in both domestic and international markets.

Zacks Rank & Key Picks

Northrop Grumman currently carries a Zacks Rank #3 (Hold). A few better-ranked stocks in the same space are Engility Holdings (EGL - Free Report) and Huntington Ingalls Industries (HII - Free Report) , each carrying a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Engility Holdings delivered an average positive earnings surprise of 19% in the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings moved up 16.8% to $2.02 over the last 90 days.

Huntington Ingalls Industries came up with an average positive earnings surprise of 9.48% in the trailing four quarters. The Zacks Consensus Estimate for 2018 earnings moved north 3.7% to $17.24 over the last 90 days.

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