Upside for Northrop Grumman Corporation?
Northrop Grumman Corporation (NYSE:NOC) continues to beat its own record. There’s no telling how high NOC stock could climb after rising more than 10% year-to-date.
Northrop Grumman continues to beat expectations. The stock is already trading at around $208.00 per share, higher than some estimates. It easily has the potential to hit a share price of more than $230.00 at the stock’s current growth before the end of 2016.
The key to Northrop stock is the aerospace sector and growing demand for planes. In late 2015, the U.S. Air Force (USAF) chose Northrop to build and supply its next generation of stealth bombers. That contract has one of the highest price tags ever at $80.0 billion to start. While the first prototypes won’t be delivered until after 2020, Northrop stock can continue to grow thanks to sustained demand for manned aircraft and autonomous systems programs. This is what has been pushing aerospace revenue higher. (Source: “Northrop Grumman Tops Expectations, Lifts Year Guidance,” The Wall Street Journal, April 27, 2016.)
While the USAF remains Northrop’s main source of revenue, the company is also proposing advanced solutions for the Army. Northrop has unveiled special command, intelligence, surveillance, and reconnaissance solutions to expand mission capabilities to address the evolving role of the U.S. Army’s aviation. (Source: “Northrop Grumman To Demonstrate Innovative Solutions For Army’s Future Aviation,” Yahoo! Finance, April 26, 2016.)
One of the projects that Northrop is developing for the Army is a new antimissile system for combat helicopters. Northrop beat other defense companies, including BAE Systems plc, to win a $35.3-million contract to supply a laser antimissile system—common infrared countermeasure (CIRCM)—to protect aircraft from shoulder-fired, heat-seeking missiles and other guided weapons. (Source: “Northrop Grumman Beats BAE in Army Antimissile System Competition,” National Defense, August 31, 2015.)
The fact that BAE has served as the traditional antimissile system supplier to the U.S. Army is the exceptional detail. Northrop’s CIRCM win has opened up new markets and new sources of revenue for the contractor.
As a reliable generator of returns, NOC stock also comes with a nice dividend. Given its solid first-quarter earnings, marked by its Street-beating performance and a higher earnings-per-share forecast, Northrop’s dividend can only go higher. In fact, according to Forbes, Northrop could hike its dividend by at least 14%. (Source: “Don’t Sell In May: Buy These 4 Dividend Growers Instead,” Forbes, May 1, 2016.)
Given that defense spending can only go up—regardless of whether Hillary Clinton or Donald Trump wins—Northrop will be among those rare stocks that keep on giving.