Northrop Grumman ( NYSE: NOC ) on Friday was downgraded to a Neutral rating from Overweight by analysts at JPMorgan who said the defense contractor’s stock is expensive compared with peers. The bank maintained its price target of $490 a share.
Northrop trades at an all-time high multiple of 16.5 times forward EBITDA, compared with 11.2 times for Lockheed Martin ( NYSE: LMT ) and 12.9 times for L3Harris Technologies ( NYSE: LHX ), according to JPMorgan’s analysis going into earnings season.
“Valuation may not matter for long periods but what stood out in preparing for Q3 earnings was Northrop’s pronounced premium to both the group and its history on most metrics,” Seth M. Seifman, analyst at JPMorgan, said in the report.
Northrop’s enterprise value-to-sales ratio is near a 10-year high, but 0.6 times greater than Lockheed’s. Northrop also is more expensive than Lockheed and L3Harris on pension-adjusted EPS, while Northrop’s free cash flow yield of less than 4% for 2023 is “exceptionally low for defense” stocks, according to JPMorgan.
The bank maintained its Neutral ratings on Lockheed and L3Harris.
For further details see:
Northrop Grumman downgraded to Neutral at JPMorgan on valuation