Los Angeles-based leading shipbuilder and defense contractor Northrop Grumman Corporation (NOC) along with The Boeing Company (BA) has submitted a joint proposal for the U.S. Missile Defense Agency (MDA) Objective Simulation Framework (OSF) program.
The five year program with an estimated value of $595 million is expected to be awarded in July 2011. The OSF program seeks to integrate the MDA’s modeling and simulation frameworks for the Ballistic Missile Defense System (BMDS).
Northrop Grumman and Boeing were the principal developers of the MDA’s current modeling and simulation frameworks consisting of the Digital Simulation Architecture and the Single Stimulation Framework.
Northrop Grumman along with Boeing has assembled a motley collection of companies to pitch in with their specific expertise in the different fields of the missile defense contract. The team among others includes Raytheon Company (RTN) and Ares Corporation.
The focus on missile defense systems comes at an opportune moment for Northrop Grumman. In the recently reported fourth quarter of 2010, the company’s Aerospace Systems sales declined 4% year over year to $2.7 billion, principally due to lower volume for missile defense programs.
Northrop Grumman’s total order backlog at the end of fiscal 2010 stood at $64.2 billion compared with $69.2 billion at fiscal-end 2009. The company expects its revenue for fiscal 2011 to about $27.5 billion. It expects its earnings per share to be in the range of $6.40 – $6.60.
Northrop Grumman is one of the world’s leading shipbuilders and the second largest defense contractor in the U.S. The company supplies a broad array of products and services to the U.S. Department of Defense, including electronic systems, information technology, submarines and surface ships, aircraft, space technology and systems integration services.
We believe that Northrop Grumman is fundamentally a sound company and has a strong market position, but we are cautious about near-term bumps. The company currently is trading at a discount to both the peer group and the S&P 500, based on forward earnings estimates.
Northrop’s product line is well positioned in high priority categories, such as defense electronics, next-generation ships, unmanned aircraft and missile defense. Revenue and earnings growth continues to be driven by its strong presence in the cyber security, intelligence, surveillance and reconnaissance market.
However, we believe all the above positives have already been taken into account. Currently the stock is moving laterally due to the absence of any positive cues. We believe the trend would continue in the near term and thus retain a short-term (1 to 3 months) Zacks #3 Rank (Hold) on the stock. We are also maintaining our long-term Neutral recommendation on the stock.
BOEING CO (BA): Free Stock Analysis Report
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