NOC - Northrop Grumman May Take The Year Off To Navigate Headwinds

2024-04-04 06:03:51 ET

Summary

• Northrop Grumman is facing challenges in normalizing its cost profile due to supply chain disruptions and inflationary pressures.
• The Pentagon recently approved production of the company's B-21 Bomber aircraft, but contract details forced the company to take a $1.2 billion charge, hitting its FY23 margin profile.
• Management is taking steps to stabilize margins and grow while better bidding for better-aligned defense contracts.
• Still early days, but the company is also working as a secondary contractor on integration projects while leaning on international revenue.

Investment Thesis

The defense sector is generally set to benefit from tailwinds on the back of heightened geopolitical conflicts that are compelling sovereign entities and agents around the world to upgrade their current state of armory and defense systems. At the same time, the supply-chain disruptions that were initially caused by the pandemic, coupled with severe inflationary pressures seen in the last few years, have started to weigh down on many defense contractors that have usually bid on contracts from sovereign entities many years ago....

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