NOC
Northrop Grumman CorporationThesis. NOC pairs a 100% four-quarter EPS beat streak (+6.0% avg surprise), 28.5% ROE, and negative beta with an 18x forward P/E — cheap for a name levered to hypersonics, B-21, and missile defense. The 29% drawdown from the $774 high has repriced a still-growing franchise; we accumulate ahead of 25% consensus upside as the FY27 budget and NATO rearmament crystallize.
Scoreboard
At $549 NOC sits just 11% above its $493.84 52-week low and 29% below the $774 high, in the 20th percentile of its annual range — a deep de-rating for a $78bn-cap prime. The print trades above the $545 50-day but well under the $612 200-day, marking a stock still in technical repair. Consensus mean target of $687 implies 25% upside, with even the $580 low target sitting above spot.
QoQ Changes
Q1-26 revenue of $9.88bn fell 16% sequentially from Q4-25's $11.71bn on normal seasonal cadence, while net income of $875m printed EPS of $6.16. The quarter beat consensus by +0.4%, extending a perfect four-quarter beat streak.
Q1-26 gross margin held at 19.8% and operating margin at 10.0%, with EBITDA margin of 15.8% — modestly below the trailing 17.2% blended level. Margins remain program-mix driven, with fixed-price legacy contracts capping gross profitability near 20%.
FCF margin is thin at 4.9% and FCF yield only 2.7%, reflecting heavy capex and working-capital intensity typical of long-cycle defense. Operating cash conversion lags reported earnings — a structural feature rather than a red flag.
Cash of $2.09bn against $17.57bn total debt leaves NOC in a $15.5bn net-debt position, with debt/equity of 103%. Liquidity is adequate (current ratio 1.15, quick ratio 0.98) and investment-grade access underwrites continued buybacks.
NOC trades at 18.2x forward earnings, 12.8x EV/EBITDA and 1.84x sales — a discount to its own history and roughly in line with prime peers despite superior ROE. The 4.08 PEG overstates richness given the 84.9% trailing earnings-growth base effect.
Recent actions include the July Camgian AI collaboration for multi-domain air-and-missile defense and a contract modification that lifted shares 3.2% on 2 July. No M&A or restructuring is signaled in the data; capital return remains the primary strategic lever.
Ownership & Insider Activity
Finnhub Form 4 data shows the 20 May activity was uniformly code-A director grants (349 shares each at $552.17, ~$192.7k), not open-market conviction buying. The only open-market prints were trivial code-S sales by director Welsh (~$16k total on 4 May), leaving net insider flow at -$1.97m — neutral-to-soft. Short interest ticked up to 1.51% of float (2.14m shares vs 1.75m prior month) but a 2.16 short ratio signals no crowded bearish positioning; 84.3% institutional ownership anchors the register.
Recent Insider Transactions
| Date | Insider | Position | Shares | Value |
|---|---|---|---|---|
| 2026-06-30 | BROWN MARIANNE CATHERINE | Director | 91 | $46.3K |
| 2026-06-30 | KRISHNA ARVIND | Director | 71 | $36.2K |
| 2026-05-20 | ABNEY DAVID P | Director | 349 | $192.7K |
| 2026-05-20 | WINSTON MARY ANN | Director | 349 | $192.7K |
| 2026-05-20 | SCHOEWE THOMAS M | Director | 349 | $192.7K |
| 2026-05-20 | WELSH MARK A. III | Director | 349 | $192.7K |
Earnings Quality
| Period | Actual EPS | Estimate | Surprise | Surprise % |
|---|---|---|---|---|
| 2026-03-31 Q1 | $6.14 | $6.12 | +$0.02 | +0.40% |
| 2025-12-31 Q4 | $7.23 | $7.04 | +$0.19 | +2.76% |
| 2025-09-30 Q3 | $7.67 | $6.52 | +$1.15 | +17.64% |
| 2025-06-30 Q2 | $7.11 | $6.89 | +$0.22 | +3.14% |
NOC beat consensus in 4 of the last 4 quarters with an average +6.0% surprise — a durable execution premium that argues against the market's de-rating.
Surprises have compressed from the Q3-25 outlier (+17.6%) toward +0.4% in Q1-26 as analysts recalibrate upward — a sign estimates are catching up to management's beat cadence, not that fundamentals are deteriorating.
Analyst Action
| Month | Distribution | Strong Buy | Buy | Hold | Sell | Strong Sell |
|---|---|---|---|---|---|---|
| 2026-07 | 5 | 13 | 10 | 0 | 0 | |
| 2026-06 | 5 | 13 | 10 | 0 | 0 | |
| 2026-05 | 5 | 12 | 12 | 0 | 0 | |
| 2026-04 | 5 | 12 | 12 | 0 | 0 |
The panel firmed modestly: Buys rose from 12 to 13 and Holds eased from 12 to 10 between April and July, while Strong Buys held at 5 and Sell/Strong Sell stayed at zero. Citi kept its Buy on 5 July even after trimming its target.
Momentum is mildly bullish — no downgrades in the 15-day window and a positive bias drift, with 18 of 28 ratings at Buy or better.
Seven Essential Metrics
ROE of 28.5% and EBITDA margin of 17.2% mark best-in-class prime profitability despite a 20.5% gross margin.
Revenue growth of just 4.4% is pedestrian, though earnings growth of 84.9% flatters off a depressed prior-year base.
FCF margin of 4.9% and a 2.7% FCF yield are thin, constraining the pace of capital return.
Net debt of $15.5bn and 103% debt/equity are manageable but leave no net-cash cushion.
Negative beta of -0.10 and government-backed multi-year revenue visibility make NOC a defensive, low-volatility holding.
Forward P/E of 18.2x, EV/EBITDA of 12.8x and 1.84x sales sit below the name's history — reasonable, not distressed.
Consistent buybacks shrink the ~142m share count, supporting per-share compounding alongside the dividend.
A modest but reliably growing dividend complements the primary buyback-driven return profile.
Competitive Snapshot
| Company | EBITDA Margin | 3Y Rev CAGR | FCF Margin | Leverage | Fwd P/E |
|---|---|---|---|---|---|
LMT Lockheed Martin | ~13% | ~3% | ~8% | ~2x | ~17x |
RTX RTX Corporation | ~16% | ~6% | ~8% | ~2.5x | ~21x |
GD General Dynamics | ~13% | ~6% | ~7% | ~1x | ~18x |
LHX L3Harris Technologies | ~21% | ~4% | ~11% | ~2.5x | ~19x |
NOC's 28.5% ROE outpaces every major prime, yet its 18.2x forward multiple is at parity with LMT/GD — the stock is under-rewarded for capital efficiency. Its weak spot is FCF conversion, where RTX and LHX screen better. Against the group, NOC offers the cleanest leverage to space and missile-defense growth with a lower beta.
Business & Strategy
Four segments — Aeronautics (B-21, autonomous ISR), Defense Systems (strategic deterrent, hypersonics, munitions), Mission Systems (radar, EW, C4ISR) and Space Systems (satellites, missile-defense interceptors, launch). Space and Defense Systems carry the fastest secular tailwinds from Sentinel ICBM and Golden Dome-style missile defense.
The U.S. government — DoD and the intelligence community — dominates revenue, supplemented by allied FMS sales into NATO and Asia/Pacific.
Long-cycle cost-plus and fixed-price development and production contracts, plus recurring sustainment, modernization and services revenue. Revenue per employee runs ~$446k across 95,000 staff.
Program labor, engineering talent, supply-chain inputs and fixed-price contract risk on legacy development programs are the primary margin governors.
NOC's moat is regulatory and technical: sole- or dual-source positions on nuclear-triad modernization (B-21, Sentinel) and classified space programs create decade-long, near-uncontestable revenue. Switching costs and security clearances make displacement effectively impossible once a prime is entrenched.
Monetary-Policy Sensitivity
- Lower discount rate lifts long-duration defense cash flows
- Reduced interest expense on the $17.6bn debt load
- Defensive, negative-beta bid in an easing cycle
As a low-beta, long-duration cash-flow compounder, NOC benefits modestly from falling rates via valuation and interest-cost relief. The bigger swing factor remains defense appropriations rather than the rate path.
SWOT Analysis
- 28.5% ROE and a 100% four-quarter beat rate
- Entrenched sole-source triad programs (B-21, Sentinel)
- Negative beta provides portfolio ballast
- Forward P/E of 18x below its own history
- Thin 4.9% FCF margin and 2.7% FCF yield
- 20.5% gross margin capped by fixed-price legacy work
- $15.5bn net debt, no net-cash cushion
- Pedestrian 4.4% revenue growth
- $1.5tn FY27 defense/autonomy spending cycle
- NATO rearmament and allied FMS demand
- Hypersonics and multi-domain missile defense (Camgian AI)
- Space Systems and interceptor scale-up
- Fixed-price development cost overruns
- Budget continuing-resolution / appropriations risk
- Sentinel cost growth and program delays
- 29% drawdown signals fragile sentiment
Catalysts & Event Risks
- Q3 2026Q2-26 earnings
Next print tests whether the perfect beat streak and upward estimate revisions continue.
- Q4 2026FY27 defense appropriations
Passage of the $1.5tn-scale FY27 request, including the Defense Autonomous Warfare Group, would confirm multi-year demand.
- Q3 2026Sentinel / B-21 milestones
Production and cost-review updates on triad modernization drive the long-cycle revenue narrative.
- Q3 2026NATO arms-deal flow
Additional allied FMS awards from the ongoing summit cadence add international upside.
- Q4 2026Missile-defense awards
Golden Dome-style architecture awards would materially expand Space/Defense Systems backlog.
The setup is catalyst-rich into H2-26, with the FY27 budget and Q2 earnings the highest-conviction near-term drivers. Positive appropriations news is the most likely trigger to close the 25% gap to consensus.
Technical Analysis
NOC trades in the 20th percentile of its 52-week range, 29% below the $774 high and clinging just above the $545 50-day average. The 200-day at $612 is the pivotal overhead resistance; reclaiming it would confirm trend repair, while $494 (the 52-week low) is the line in the sand. Volume of 703k sits below the 945k average, suggesting selling is exhausting rather than accelerating. Risk-reward favors accumulation near the base, with asymmetric upside toward the $666 median target.
Verdict
Macro context. A $1.5tn FY27 defense budget request, active Strait-of-Hormuz strikes and NATO rearmament create a rare convergence of geopolitical demand, fiscal generosity and multi-year revenue visibility for the primes. NOC's negative beta makes it a defensive way to own that theme through a choppy rate and equity backdrop.
NOC is a best-in-class prime — 28.5% ROE, a perfect four-quarter beat streak and entrenched triad monopolies — trading 29% off its high at just 18x forward earnings. Insider flow is neutral and near-term technicals remain in a downtrend below the 200-day, so this is accumulate-into-weakness rather than chase-the-breakout. With a $1.5tn FY27 budget cycle and 25% consensus upside as backstop, we set a $665 target and rate the shares ACCUMULATE.
Data source: Yahoo Finance / yfinance · fetched 7/8/2026, 10:11:42 AM