Northrop Gains Air Superiority

Have I mentioned yet how much earnings season annoys me? (Oh yes, I have.) Four times a year, we suffer this deluge of corporate earnings news, and the roar drowns out other information that, while perhaps less telling about the past, carries important news about the future. Take, for example, Northrop Grumman's (NYSE: NOC  ) announcement on Friday of a major contract win from the U.S. Navy. For five days I've wanted to write about this one, and only now find an eddy amidst the earnings torrent in which to quietly tap out a few lines -- before being swept away once more.

The real news
A little more than one year ago, I managed to merge the mundane with the momentous by slipping a mention of Northrop's successful test-landing of an RQ-8A Fire Scout unmanned aerial vehicle (UAV) on a moving naval vessel into a Foolish Forecast on Northrop's earnings. On Friday, Northrop marched another step down the path of transforming our military into an army of robots (in the literal rather than the usual pejorative sense). To wit, it won the six-year, $636 million Unmanned Combat Air System Carrier Demonstration (UCAS-D) contract to conduct the at-sea carrier launch and recovery of the fixed-wing X-47B UAV.

The X-47B (naval cousin to Northrop's X-47A Pegasus land-based UAV, and rival to Boeing's (NYSE: BA  ) X-45 family of UAVs) will be a long time in the making. Initially, two test vehicles will be built by a consortium led by Northrop, but including a whole host of supporting players, notably: GE (NYSE: GE  ) Aviation, Honeywell (NYSE: HON  ) , Lockheed Martin (NYSE: LMT  ) , two United Technologies (NYSE: UTX  ) subsidiaries, and even Dell (Nasdaq: DELL  ) ! Also Rockwell Collins, Parker Hannifin, Goodrich, Wind River, GKN Aerospace, Moog, and Eaton. However, the plane won't fly until late 2009, or begin carrier test-landings until late 2011 -- those tests will continue through 2013. So if this plane won't enter production for another seven years, why is it important to Northrop investors?

Well, aside from the obvious answer -- the $636 million price tag, which Northrop gets to start collecting long before the project becomes a viable product -- the company's win here suggests that Northrop is pulling ahead in the UAV race. The way I see it, the U.S. military is transitioning from one in which humans fight on the front line to one in which we sit at a safe distance while our mechanical proxies do the dirty (and dangerous) work. As this trend plays out, Northrop is winning more and more contracts like UCAS-D and building out its family of UAV products that already includes the RQ-4 Global Hawk, the MQ-5B Hunter, and the MQ-8 Fire Scout.

Ultimately, we may wake up one day and find that Northrop has supplanted Lockheed and Boeing as the nation's foremost military aircraft maker.

Spotting trends early is our forte atMotley Fool Rule Breakers, where we've already identified another defense contractor with the wind at its back. Find out who it is when you take a free, 30-day trial to the service.

Dell is recommended in both Stock Advisor and Inside Value.

Fool contributor Rich Smith does not own shares of any company named above. Why do we tell you this? Because The Motley Fool has a disclosure policy.


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