Northrop Grumman (NYSE: NOC)

Quality Value Investing Research Report | $NOC Updated Coverage | October 2024

In this updated coverage research report, we reexamine the QVI Real-Time Stock Picks industrials sector holding, Northrop Grumman Corporation — NOC 0.00%↑ — to see if it continues to meet Quality Value Investing’s criteria based on our checklist analysis of the business’s current wealth and the share price’s present value.

Northrop Grumman | Current Wealth

Value Proposition

Northrop Grumman is a dividend-paying large-cap stock in the industrials sector’s aerospace & defense industry. It was added to the QVI Real-Time Stock Picks on March 25, 2022, at a $440.54 cost basis per share, adjusted for dividends.

Northrop Grumman Corporation operates as an aerospace and defense technology company in the United States, Asia/Pacific, Europe, and internationally.. The company was founded in 1939 and is headquartered in Falls Church, Virginia, USA.

Economic Moat

Morningstar assigns Northrop Grumman a wide moat rating based on its view that intangible assets in the defense industry ensure that incumbent firms are capable of servicing the military-industrial complex’s ongoing demand, translating to broad barriers to entry.

QVI’s Value Proposition Elevator Pitch for NOC

Northrop Grumman is an entrenched member of the US military-industrial complex, reaping the long-term benefits of predictable incremental growth and steady profit margins.

QVI’s value proposition rating for Northrop Grumman: Bullish.

Returns on Management

Revenue Growth and Net Profit Margin

Per the table below, Northrop Grumman’s trailing three-year annualized revenue growth was low-single-digit positive, underperforming the S&P 500 topline growth of 18.6%. In contrast, the company’s positive revenue growth of 7.6% topped the broader market’s 4.6% for the most recently reported twelve months.

Further down the income statement, Northrop Grumman had a positive mid-single-digit net profit margin from a 16.8% gross margin, underperforming the S&P 500’s net of 10.8% from a gross of 40.7%.

Returns on Equity and Invested Capital

Northrop Grumman’s senior management produced a return on equity, or ROE, aligned with QVI’s targeted threshold and the S&P 500’s ROE of 17.4%.

Stock buyback programs often elevate ROE. For example, Northrop Grumman announced in January 2024 an accelerated share repurchase (ASR) agreement to buy back $1 billion of its common stock. In an ASR, a company buys its shares up-front for a specified price, and an intermediary repurchases the shares over a variable time window with an agreed-upon maturity date.

Northrop Grumman’s return on invested capital, or ROIC, underperformed QVI’s threshold and the broader market’s 22.5% return. However, the company’s ROIC exceeded its weighted average cost of capital, or WACC, demonstrating that its senior executives are adequate capital allocators (Source of WACC: GuruFocus).

QVI’s business fundamentals rating for Northrop Grumman: Neutral.

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Next, we’ll look at the company’s enterprise downsize risks, the stock price’s present value, share price downside risks, and the investment thesis, each exclusive to Quality Value Investing’s premium (paying) subscribers.

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Unless noted, all data presented is sourced from Charles Schwab & Co. as of the market close on October 1, 2024, and intended for illustration only.

Disclosure: As of the date of this research report, I/we had no beneficial position in NOC common shares in our family portfolio. I wrote this report myself, and it expresses my own opinions. I am not receiving compensation for it other than from Substack paid subscriptions. I have no business relationship with any company whose stock is mentioned in this post.

Additional Disclosure: Quality Value Investing by David J. Waldron’s primary ticker research reports are for informational purposes only. The accuracy of the data cannot be guaranteed. Narrative and analytics are impersonal, i.e., not tailored to individual needs nor intended for portfolio construction beyond his family portfolio, which is presented solely for educational purposes. David is an individual investor and author, not an investment adviser. Readers should always engage in independent research or due diligence and consider, as appropriate, consulting a fee-only certified financial planner, licensed discount broker/dealer, flat fee registered investment adviser, certified public accountant, or specialized attorney before making any investment, income tax, or estate planning decisions.

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