Shares of aerospace and defense contractor Northrop Grumman (NYSE:NOC) rose an impressive 31% in the first six months of 2019 according to data provided by S&P Global Market Intelligence. That easily outpaced the roughly 17% gain in the S&P 500 index. The overall advance came in two broad steps, with Northrop starting the year on a strong note, cooling in March, and then taking off again in April.
The two distinct advances were largely driven by earnings news. That said, when the broader market swooned in late 2018, Northrop Grumman took a bigger hit, losing over a quarter of its value in the final months of the year. That capped off a pretty bad 2018 for the stock, which lost around 20% for the 12-month span, but was off a hefty 32% from its early-year highs. So it had more ground to make up from that decline, which partly explains the strong early-year showing in 2019 when Wall Street started moving in a more positive direction.
That set the stage for the company's fourth-quarter 2018 earnings, released in January, which only edged past analyst revenue projections but blew past earnings expectations by nearly $0.50 a share. That performance clearly pleased investors, which sent the shares up on the news, with a 12.5% advance in January alone.
Northrop Grumman's outlook for 2019, however, was a bit modest, with a 5% sales growth projection falling short of analyst expectations. And while the company explained that operating margins would likely remain near historical highs, that will basically leave them roughly flat year over year. The thing is, management has a habit of underpromising. So investors appear to have taken the outlook with a grain of salt.
When the company reported first-quarter earnings in April, sales were up 22% with earnings per share advancing roughly 6%. That earnings figure was notable because net earnings advanced just 3%, with the per-share figure pushed higher by a massive stock buyback program completed early in the year. That buyback will help boost earnings through the rest of the year, as well. Segment operating margins, meanwhile, improved by 50 basis points year over year -- a good start and definitely better than the mid-10% range offered by management at the start of the year. Shortly after that solid first-quarter showing, Northrop announced a 10% dividend increase. Investors were obviously pleased with the company's results.
Also notable, however, has been the defense company's new contract wins. Northrop was able to grow its backlog of work to be completed by 7% in the early months of 2019. That means a solid future is ahead. All of this news, meanwhile, fits well with the broader defense sector, which has performed well this year and is benefiting from increased investor interest. In fact, while Northrop's stock had a good first-half run, the stock of some peers, like Lockheed Martin, did even better.
In the first half of 2019, Northrop Grumman bounced back strongly from a rough 2018. The company's financial and operational results have generally backed up that run. However, it's important to note that even if the aerospace and defense contractor beats its financial projections it still isn't going to be a growth stock. And at this point, the price-to-sales ratio, price-to-book-value ratio, and price-to-cash-flow ratio are all above their five-year averages. It's true that the price-to-trailing-earnings ratio is below its longer-term average, but that's offset by the fact that its price to forward earnings is above the five-year average. Put simply, after a solid advance in early 2019, Northrop doesn't look particularly cheap.