Northrop Grumman Q4 Preview: Rebound Quarter Inbound?

Investors continue to digest quarterly results, with many companies reporting daily. Yesterday, we received quarterly prints from Baker Hughes BKR and Logitech International LOGI, among others.

And coming up soon is Northrop Grumman NOC, expected to reveal its quarterly results on Thursday, January 26th, before the market open.

Northrop Grumman supplies a broad array of products and services to the U.S. Department of Defense (DoD), including electronic systems, information technology, aircraft, space technology, and systems integration services.

NOC shares have outperformed over the last year, up 15% compared to the S&P 500’s 7% decline.

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How does the company shape up heading into its quarterly release? Fortunately, we can use Lockheed-Martin’s LMT quarterly results received just this morning as a small gauge.

Lockheed Martin Q4

Lockheed Martin is the largest defense contractor in the world, serving in defense, space, intelligence, homeland security, cyber security, and information technology.

Lockheed Martin delivered better-than-expected results, reporting quarterly earnings of $7.79 per share, beating the $7.41 Zacks Consensus EPS Estimate by 5% and growing 7.5% Y/Y.

Further, the company generated roughly $19 billion in sales throughout the quarter, again topping our consensus estimate of $18.3 billion by 4%, climbing 7.3% Y/Y.

Impressively, the company’s backlog grew 11% Y/Y to $150 billion while returning $5 billion in cash to shareholders through share repurchases and dividends.

Still, the company’s cash-generating abilities took a hit; LMT generated $1.2 billion in free cash flow, decreasing 67% Y/Y. And cash from operations totaled $1.9 billion, compared to $4.3 billion in the year-ago quarter.

CEO James Taiclet, on the results, “Lockheed Martin’s stronger than expected finish to the year demonstrated the company’s reliability and resiliency to meet commitments in challenging environments, while leading the industry’s critical security advancements for our nation and allies.”

Northrop Grumman

Quarterly Estimates –

Analysts have had mixed opinions for the quarter to be reported, with a singular downward and upward earnings estimate revision hitting the tape over the last several months. The Zacks Consensus EPS Estimate of $6.60 suggests an improvement of 10% Y/Y.

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Image Source: Zacks Investment Research

In addition, our consensus revenue estimate presently stands at $9.7 billion, indicating a positive change of nearly 12% year-over-year.

Valuation –

NOC’s valuation levels are elevated on a historical basis; the company’s forward earnings multiple currently sits at 20.8X, above the 15.8X five-year median by a fair margin.

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Image Source: Zacks Investment Research

Further, the company’s forward price-to-sales works out to be 1.8X, again above the 1.6X five-year median.

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Image Source: Zacks Investment Research

Quarterly Performance –

The company snapped a streak of positive surprises in its latest report, falling short of earnings estimates by roughly 3.3%.

Top-line results have come in under expectations, with the defense titan falling short of revenue estimates in five consecutive quarters.

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Image Source: Zacks Investment Research

Putting Everything Together

Earnings season continues to chug along, with investors finally seeing what’s transpired behind the scenes.

On Thursday, January 26th, we’ll receive quarterly results from a titan in defense, Northrop Grumman NOC.

We have already received results from Lockheed Martin LMT, with the company beating on both the top and bottom lines.

Analysts have had mixed reactions regarding NOC’s quarter, with estimates indicating an uptick in earnings and revenue.

NOC’s valuation multiples could be interpreted as a bit stretched, with its forward earnings multiple and forward price-to-sales ratio residing above their respective five-year medians.

In addition, Northrop snapped a streak of positive EPS surprises in its latest release, and the company has struggled to beat revenue estimates.

Heading into the release, Northrop Grumman is a Zacks Rank #3 (Hold) with an Earnings ESP of 0.12%.

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Lockheed Martin Corporation (LMT) : Free Stock Analysis Report

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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.

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