Derived from the world-famous Global Hawk, Northrop's new MQ-4C promises to "make the world's oceans smaller" -- and easier to keep an eye on. Image source: Northrop Grumman.

Three years ago, the U.S. Navy awarded a contract to Northrop Grumman (NYSE:NOC) to fund the continued development of its newest fixed-wing intelligence drone, the MQ-4C "Triton." Valued at just $28 million, it wasn't a big award, but it did serve to help keep the Triton project alive. And last week, that project finally bore fruit -- when the Navy gave Northrop a new $255.2 million contract, greenlighting construction of the first three production-model Tritons.

News of this contract, for which delivery is due in August 2020, first appeared in the Pentagon's daily digest of contracts awarded last week. In a separate award that same day, the Navy ordered $95 million worth of spare parts to keep its new drones flying. Then, three days later, the Navy awarded Northrop even more money -- $49.4 million this time -- to fund the procurement of "long lead components" needed to build the new drones.

Add it all up, and in just four days, Northrop Grumman netted just under $400 million in new revenues from Triton.

What Triton is

Northrop Grumman describes Triton's mission as providing "real-time intelligence, surveillance and reconnaissance (ISR) over vast ocean and coastal regions." Derived from the company's successful Global Hawk drone, but tweaked to specialize in maritime missions, Triton's sensors monitor the ocean in a 360-degree circle. Triton is designed to fly for 24 hours at a time, at altitudes in excess of 10 miles -- and for distances as far as 8,200 nautical miles. Its mission will complement that of the lower-flying, lower-endurance manned P-8A Poseidon drone from Boeing (NYSE:BA). Boeing designed Poseidon primarily for maritime sub-hunting missions.

Triton's long range and long endurance allow the drone to circumnavigate one third of the Earth's circumference in one hop before needing to refuel. Equipped with Northrop's own AN/ZPY-3 multifunction active sensor radar, it will monitor air, land, and sea traffic below it all the way. While official confirmation of the drone's capabilities are hard to come by, media reports suggest that one single Triton could potentially survey as much as 2,700,000 square miles of surface area in a single sortie.

That's 10% of the Indian Ocean. Or 23% of Africa. Or...87% of the continental United States.

What Triton costs

According to the Government Accountability Office (GAO), the Navy intends to purchase 66 Tritons at a cost of $130 million apiece ($183 million including research and development costs). Thus, the $400 million spent on buying and supplying three Tritons with spare parts last week probably comes very close to the mark on what the Pentagon will be spending on future Triton drones.

In total, GAO values the entire Triton project at $12.8 billion, of which $8.9 billion remains to be spent.

What it means for investors

So, what do Northrop's new Triton contracts mean to investors in Northrop Grumman stock? More money, obviously.

The $12.8 billion value of the Triton program is nearly 30% greater than the total revenues Northrop Grumman's Aerospace Systems business brought in last year (albeit Triton's revenues will be spread out over a number of years). And according to data from S&P Global Market Intelligence, these will be very high-margin revenues. S&P Global data show that Northrop's Aerospace unit earns operating profit margins of 12.2% -- 240 basis points better than the 9.8% Boeing earns at its Military Aircraft division.

Over the course of the entire $12.8 billion program, investors can therefore expect Triton to generate as much as $1.6 billion in operating profit for Northrop, or roughly $8.74 per share, initially. And over the years to come, maintenance and upgrade revenues at similar margins can be expected.

As big as last week's contracts were for Northrop Grumman stock owners, the good news is just beginning.

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