A single share of Northrop Grumman Corporation (NOC) sells for around $295. The company made slightly more than $8.16 billion in sales this past quarter, beating Wall Street expectations by a slim margin. Northrop Grumman’s profitability came in about 50 cents higher than expectations. However, company leaders indicate there might be minimal profit growth this year.
This forewarning of slightly disappointing quarterly growth should not worry investors as Northrop executives have a track record of rolling out conservative estimates only to blow right past them months later with spectacular earnings reports.
If you are looking for a rock-solid defense stock with positive momentum, you should consider an investment in Northrop Grumman. Here’s why.
Northrop’s latest guidance indicates it is likely the company will enjoy double-digit sales growth this year, possibly hitting $35 billion. This weapons maker certainly has reliable organic growth. The Trump administration will likely to continue ramping up national security spending or at least keep it at its current level, benefiting the likes of Northrop Grumman. The company’s CEO, Kathy Warden, is adamant there will be digital sales growth in the mid-single digits into next year.
Warden is quick to point out her company delivered a robust margin rate of nearly 11 percent for the entirety of the year. The company’s CFO, Kenneth Bedingfield, indicates the upcoming margin rate is likely to be in the mid or even possibly high 10 percent range. Investors who keep tabs on Northrop Grumman understand the company’s leaders are unsatisfied with anything but a continuously elevated operating profit margin. Though this defense superstar’s operating profit margins have slightly decreased from the 17 percent margin reached in 2017, its financial figures are still impressive. Northrop’s operating profit margins stemming from continuing operations is not too far from its best-ever 11 percent. Combine Northrop’s consistent sales growth with its superb profit margins and you have quite the money-maker worthy of attention from investors across the globe. The question is whether it makes sense to purchase Northrop at $295 per share.
It is often said timing is everything in life. This adage is certainly true in the context of investing. Those who invested in Northrop in 2018 likely lost money. All in all, the stock was down about 20 percent for the year. In fact, the stock plummeted more than 30 percent from its April high. Part of the challenges is implementing personnel and intellectual property from the recently acquired Orbital ATK. Investors who remained on board and refused to sell were rewarded for their patience.
If you did not catch the Northrop train in time, there is still hope. Company executives indicate its space business will likely grow by 10 percent this year. Northrop’s F-35 Joint Strike Fighter is likely to spur considerable revenue growth. However, the picture is not entirely rosy. Company leaders indicate its other businesses will likely stagnate or even make less money in the upcoming months.
This is cause for concern yet the silver lining is the fact that President Donald Trump is the heavy favorite to win the 2020 election. If Trump is re-elected, he will likely boost defense spending or even hike spending as his cabinet beats the war drums for battle with the likes of Iran and North Korea. Even if the United States does not take military action against the many authoritarian regimes across the world in the next year or even the next half-decade, the presence of these threats is fantastic news for the likes of Northrop. The fact that President Trump is pushing for an incredibly costly space program is sweet music to the ears of Northrop Grumman investors.
Investors are encouraged to either hold or buy. Northrop’s engineers have all sorts of intriguing rockets, weapons, fighter planes, mission systems, and tech services coming down the pipeline. Though it will cost a pretty penny to buy Northrop stock now or in the near future, it might be a wise investment. There is certainly a chance President Trump’s insistence on trade tariffs will make it more challenging for Northrop to extend its profit margins. However, the bottom line is Northrop Grumman Corporation is a profitable business with an incredibly bright future.
If you do not currently own NOC, consider obtaining a stake in this high-flying defense company. Those who already own NOC should consider adding to their position or holding firm until the next quarterly results arrive.
Regards,
Ethan Warrick
Editor
Wealth Authority
