The board of Northrop Grumman Corporation (NOC) approved a new share buyback program authorizing the repurchase of up to $2 billion worth of shares. The proposed repurchase represents approximately 11% of the company’s current market capitalization.
The Los Angeles-based aerospace and electronics manufacturer had approximately 300 million shares outstanding as of May 31, 2010. The company remains committed toward returning cash to shareholders in the form of dividends and share repurchases.
In the first quarter of 2010, Northrop bought back 8.3 million of its shares returning roughly $500 million to shareholders.
The company’s first-quarter earnings came in at $1.53 per share, exceeding the Zacks Consensus Estimate of $1.32 and last year’s earnings of $1.17. Revenue in the quarter increased 9% to $8.61 billion.
We believe Northrop’s strong balance sheet and cash flows provide substantial financial flexibility and a cushion in matters of incremental dividend, ongoing share repurchase and earnings accretive acquisitions. At the end of the first-quarter 2010, the company had a lower long-term debt-to-capitalization of 21.4% as against a Zacks industry average of 93.2%. Total long-term debt was $3.4 billion along with cash holdings of approximately $2 billion.
Northrop Grumman is one of the largest defense contractors in the U.S. and continues to benefit from high defense spending. The company enjoys strong revenue growth across the board, a broadly diversified programs portfolio, strong order bookings and an impressive order backlog.
At the end of first-quarter 2010, the company’s order backlog was $67.5 billion. Going forward, we expect cyber security, intelligence, surveillance and reconnaissance to drive the company’s growth.
Prime competitors of the company include Boeing Co. (BA), General Dynamics Corp. (GD) and Lockheed Martin Corporation (LMT). We are currently “Neutral” on Northrop.
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