Whether by air, land, or sea, when you think defense, you have to think Northrop Grumman
Tomorrow, though, Northrop duels the most fearsome antagonist of all -- Wall Street expectations -- as it reports its fiscal Q4 and full-year 2007 earnings numbers. Here's how the order of battle appears.
What analysts say:
- Buy, sell, or waffle? Nineteen analysts still track Northrop. Three say to buy it, 15 to hold it, and one analyst would sell the stock.
- Revenue. On average, analysts predict 5.5% quarterly sales growth to $8.46 billion.
- Earnings. Profits are predicted to rise a percent or two, to $1.31 per share.
What management says:
Big news and potentially big news were on offer at Northrop this quarter. Big news first: In December, the company authorized a buyback of as much as 9% of its total share count -- $2.5 billion in all. As I described at the time, falling interest rates, a dividend that already dwarfs those of its rivals in size, and a not-unreasonable price per share all argue in favor of this buyback.
On the "potential" side of the equation, Northrop submitted one bid for the KC-X Tanker Program, hoping to beat out Boeing in the competition to build the Air Force's next-generation in-flight refueling aircraft. Closer to ground level, Northrop also teamed with Oshkosh in a bid to build the Army's next-generation jeep, so far known only by its JLTV (joint light tactical vehicle) acronym. Combined, these two bids offer the potential for tens of billions of dollars of future revenue.
What management does:
Of course, revenue isn't worth much unless you can earn a profit on it. Fortunately, Northrop's just been doing better and better in that regard. Operating and net margins have both climbed steadily over the past 18 months.
6/06 |
9/06 |
12/06 |
3/07 |
6/07 |
9/07 |
|
---|---|---|---|---|---|---|
Operating |
7.7% |
8% |
8.5% |
8.7% |
8.8% |
9.5% |
Net |
4.8% |
4.8% |
5.1% |
5.2% |
5.2% |
5.7% |
One Fool says:
Things are going well at Northrop -- but how long will the good times keep rolling? Investing in the megadefense contractors, with their numerous moving parts, makes getting a grip on the whole a tricky endeavor.
One "big picture" tool at our disposal, though, is the backlog number that these firms routinely report alongside their earnings. Some give us their "funded backlog" numbers. Some give "total backlog." The most shareholder-friendly firms -- Northrop and SAIC
Funded backlog |
$23.3 billion |
$26.4 billion |
$30.4 billion |
Unfunded backlog |
$32.8 billion |
$33.4 billion |
$33.7 billion |
Total backlog |
$56.2 billion |
$59.8 billion |
$64.1 billion |
YTD revenues |
$22.9 billion |
$22.1 billion |
$23.2 billion |
The way I read this, we've got revenue pretty much stagnant, but backlog up 14% over the last two years. What's more, the funded portion of that backlog -- firm orders for which the customer must pay -- is growing faster than total backlog. Call me an optimist if you must, but I like where this ship is headed.
For a more prose-intensive description of how Northrop is doing, read: