Full Afterburner Lit (NOC Q1 FY12/24 Earnings Review)

Full Afterburner Lit (NOC Q1 FY12/24 Earnings Review)
Photo by Ted Balmer / Unsplash

Northrop Grumman (NOC) Q1 FY12/24 Earnings Review

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Defense Stocks Are So Boring Nobody Wants To Own Them. Right?

Take a look at the L3Harris earnings note we posted here yesterday. Read the geopolitical context within which capital has been rotating of late into defense primes. And then consider the finest-managed of them all, Northrop Grumman ($NOC).

Kathy Warden, CEO at Northrop, is a superb CEO in my opinion, probably the best CEO of all the stocks we cover in terms of sheer execution skill. In recent years she has led the integration of the $10bn acquisition of Orbital-ATK bringing it in ahead of time, ahead of cost; on then being given the big chair, sold the poor-quality IT services unit and with that vanquished a whole caste of middle-manager types. Along the way she managed to pick up a $90bn prime contract to replace the ageing US Minuteman III nuclear arsenal. Oh and in addition to that, the company financials run on rails. A case study in how to run an old-line business.

NOC’s numbers are strong and getting stronger. Cashflow margins look weak because of Q1’s seasonal working capital outflow (meaning they recognize a lot of revenue in Q1 ahead of getting paid for it) but will in all likelihood move up from now to year end. Revenue growth is solid - 8% on a TTM basis, and remember this is a defense prime with $40bn of trailing revenue. The pension liabilities are as close to Diddly McSquat as can be. And, better, the stock looks poised to move up in my view, as our chart below lays out.

Oh also it yields a little under 2% dividend. Which seems to matter to some folks, I know not why. As you can get >2x that by leaving your money laying around these days.

By the way, the afterburner reference? I don’t mean your common-or-garden Top Gun ritzy showoff flyby thing. I mean, lit like a Northrop Grumman B-1 on the runway. Yes, before it takes off. YouTube it.

(Though if you live within 50 miles of a USAF base that hosts B-1s, you know what it sounds like and feels like already!)

Below we take a look at the detailed financials, valuation analysis and our stock price projection, technical analysis and rating.

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Northrop Grumman Detailed Fundamental Analysis