The Next Big Thing for NOC Stock
If you are a Northrop Grumman Corporation (NYSE:NOC) fan, you have probably slept comfortably at night in the reassurance that your shares are contributing to the defense of the United States and the fortification of your portfolio—and you’ll likely continue to sleep soundly.
Since February of 2013, Northrop Grumman stock has enjoyed a constant rise from $65.00 to the current $201.39. NOC stock didn’t blip during the S&P 500 sell-offs last January. It kept on climbing like one of its “B-2” bombers to find new heights.
NOC stock also announced a quarterly dividend (replacing its annual dividend). Stockholders of record received an $0.80-per-share dividend on February 29. This amounts to $3.20 on an annualized basis and a dividend yield of 1.6%. (Source: “Morningstar Gives “A-” Credit Rating to Northrop Grumman Co.,” Morningstar, April 13, 2016.)
There is no sign of Northrop Grumman stock stalling. Week after week this year, it keeps setting new records.
Last October, Northrop received the contract to design and build the next long-range bomber for the U.S. Air Force (USAF), the Long Range Stealth Bomber (LRS-B). Northrop will build a fleet of 100 aircraft, with an initial operational capability expected for 2025. (Source: “USAF LRS-B Award To Northrop Grumman Is Upheld,” Aviation Week, February 19, 2016). That contract could be worth as much as $80.0 billion by the time maintenance and other costs are included.
Drexel Hamilton predicted NOC shares to hit $211.00 in 2016 because of the contract. Nevertheless, the research firm was overly conservative, failing to grasp the full extent of the Pentagon’s revitalized military spending. (Source: “Analysts Actions — Apple, Twitter, Northrop Grumman, Ford and More,” The Street, October 28, 2015.) Goldman Sachs has raised its target for NOC stock from $219.00 to $233.00 per share this week, rating it a “Buy.” (Source: “Goldman Sachs Boosts Northrop Grumman Co. (NOC) Price Target To $233.00,” Washington Newswire, April 15, 2016.)
Geopolitical risk from the continued tensions between Moscow and Washington and the Middle East to increased Chinese claims have allowed the Pentagon’s budget to increase by over $2.0 billion this year. (Source: “Zacks Industry Outlook Highlights: Lockheed Martin, Boeing, Northrop Grumman, General Dynamics and Raytheon,” Zacks, April 15, 2016.)
Yet defense is not the only area where Northrop is growing. Northrop has won multimillion-dollar contracts from the Pentagon and has also tapped into NASA contracts and dollars, as well as contracts for the U.S. military.
Developed under DARPA for the military, Northrop is already working on a partially reusable responsive “XS-1” spaceplane, which is a lightweight launcher that delivers satellites into orbit.
With the XS-1, Northrop must be able to place a payload of 1.8 tons in low orbit while ensuring launch costs don’t exceed $5.0 million. The spaceplane’s reusable stage must also achieve a speed of Mach 10 (about 7,000 mph). The first reusable stage must be able to perform 10 successive launches in 10 days. (Source: “Northrop Sets Sights On Phase 2 Of Darpa’s XS-1 Spaceplane,” Aviation Week, April 14, 2016.)
The Northrop Grumman XS-1 vertical takeoff/horizontal landing design uses a composite cryogenic tank built and tested as a subscale composite tank for NASA’s heavy-lift “Space Launch System” (SLS). Northrop can transfer the technology to improve ballistic missiles and hypersonic travel vehicles. The XS-1 first stage will have the performance to deploy hypersonic testbeds. Northrop is now ready to shift to the second phase of the project. (Source: Ibid.)
The stock price may not have taken into account Northrop’s space activities, because this represents longer-term research. Space is an important sideline for Northrop, given the rise of private industry in this once government-exclusive area. (Source: Ibid.)
Having secured major multibillion-dollar military contracts, Northrop stock has much more upside left, despite its meteoric bullish cycle. The space technology contracts are a small sideline for now. If they bear fruit, they could generate billions in additional revenue in the long term.