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Northrop Wins $404M Deal to Aid E-2D Advanced Hawkeye Program

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Northrop Grumman Corp.’s (NOC - Free Report) business unit, Aerospace Systems, recently won a modification contract to offer non-recurring engineering and software support activities as well as product support for E-2D Advanced Hawkeye (AHE) full rate production (FRP). Work related to the deal is expected to be completed by March 2025.

Details of the Deal

Valued at $404 million, the contract was awarded by the Naval Air Systems Command, Patuxent River, MD. Per the terms of the contract, the company will procure two E-2D AHE aircraft, one each in FRP of the 8th and 9th lots.
The majority of the task will be carried out in St. Augustine, FL; Liverpool, NY and Melbourne, FL.

Hawkeye Aircraft’s Attributes

Hawkeye is an airborne, all-weather, tactical, early-warning aircraft used by the U.S. Navy. E-2D is the fourth version of the E-2 Hawkeye. Notably, the E-2D Advanced Hawkeye has a structurally distinctive design — a rotating rotodome and four vertical stabilizer tail configurations — that provides 360-degree surveillance at all times. These technologies fitted in this aircraft increase its visibility on faraway targets.

Northrop Grumman is supported by other industry leaders on this program. Lockheed Martin’s (LMT - Free Report) unit supplies the principal AN/APY-9 radar system for the Hawkeye. L-3 Technologies’ unit supplies the ultra-high frequency electronically scanned array antenna. Meanwhile, Raytheon’s Space and Airborne Systems provides the T-56-A engines. Such support from other prominent defense majors make the Hawkeye aircraft program even more attractive.

Northrop Grumman Prospects

In recent times, the importance of military aircraft in the U.S. aerospace-defense market has gained significant traction. This upside can be attributed to advancements and integration of new tactical and logistical features along with the inclusion of improved radar systems and the availability of advanced system engineering services. Being a prominent aircraft manufacturer, Northrop Grumman is benefiting from such crucial developments that are resulting in solid demand for combat jets.

In particular, the company’s Aerospace Systems unit develops and designs military aviation aircraft, manned aircraft, autonomous systems and spacecraft. These product lines enable the division to receive a steady inflow of contracts from the Pentagon and the foreign allies of the United States. As a result, this segment has been witnessing solid backlog growth, which is indicative of notable revenue growth prospects. As of the end of 2019, the Aerospace Systems unit witnessed 27% annual backlog growth, with the Hawkeye jet being one of the contributors.

As the E-2D Hawkeye Aircraft is a significant defense program for the government of the United States, we can expect more contract inflows like the latest one in the near future. These, in turn, should further bolster the Aerospace segment’s top line in the coming days.

Furthermore, the U.S. government’s fiscal 2020 defense budget includes a spending plan of $57.7 billion on aircraft, reflecting a massive increase of 166% from the approved fiscal 2019 defense spending on aircraft. Such spending provision should usher in more contracts for Northrop Grumman moving ahead and boost its profit.

Price Performance

In a year’s time, shares of Northrop Grumman have gained 15% against the industry’s 30.9% decline.

Zacks Rank & Key Pick    

Northrop Grumman currently carries a Zacks Rank #2 (Buy). Another top-ranked stock in the same space is Huntington Ingalls Industries, Inc (HII - Free Report) , carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

Huntington Ingalls delivered a positive earnings surprise of 2.83% in the last reported quarter. The Zacks Consensus Estimate for 2020 earnings indicates an annual improvement of 45.2%.

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