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.
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.