Shares of Northrup Grumman (NOC 0.80%) fell 13.5% this week, one of its worst trading periods in years, according to data from S&P Global Market Intelligence. The usually steady defense contractor posted a strong earnings report this week but is facing concerns from Wall Street about long-term profitability, as well as fallout for broader defense stocks amid a stalemate in the Iran conflict.
Here's why Northrup Grumman stock was falling this week, and whether it belongs in your portfolio today.
NYSE: NOC
Key Data Points
High demand, but profit uncertainty
Northrup Grumman's earnings came in as expected. Revenue was up 4% year over year to $9.9 billion, and the backlog grew to a record $96 billion at the end of the quarter.
So why is the stock falling this week? Investors have generally soured on defense stocks as the Iran conflict turns from hot to a stalemate, despite the defense department proposing a huge spending boost to a $1.5 trillion budget in 2027. As well, some of Northrop Grumman's programs, like the B-21 bomber, are going over budget under fixed-price contracts, which could lead to margin compression in the years ahead if the company cannot rein in its spending.
Image source: Getty Images.
Time to buy the dip?
Despite its steady revenue growth, Northrop Grumman faces significant potential risks from cost overruns. The stock currently trades at a price-to-earnings ratio (P/E) of 18, which is cheaper than the broader market, but it is not particularly cheap relative to competitors that are growing faster, such as Lockheed Martin.
Avoid buying the dip on Northrup Grumman; there are better defense stocks you can buy today.
