Key Points
Northrop topped expectations even after stripping out one-time items, and raised its full-year guidance.
The company has a great long-term franchise, but investors should be careful chasing rallies in defense stocks.
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Northrop Grumman (NYSE: NOC) posted better-than-expected quarterly results and raised full-year guidance. Investors were pleased, sending Northrop shares up 8% as of 1 p.m. ET.
Image source: Northrop Grumman.
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Strong sequential growth
Northrop Grumman is an aviation and space-focused defense contractor with roles on key programs that are Pentagon priorities. The company earned $8.15 per share in the most recent quarter on revenue of $10.4 billion, topping Wall Street’s $6.84 per share on $10 billion consensus estimate.
The beat included a $1.04-per-share gain from the sale of a subsidiary, but even backing out that sale, Northrop’s $7.11-per-share profit was better than expected. Revenue grew by 9% from the previous three months, topping the company’s guidance back in April for mid-single-digit sales growth in the quarter.
Northrop posted a strong performance from all its units, with aeronautics the top performer in terms of margin.
Is Northrop Grumman stock a buy?
The beat came during a period of uncertainty for many defense stocks, as illustrated by rival Lockheed Martin‘s poor earnings showing. Northrop also raised its full-year earnings guidance by $0.05 per share on both the low and high end, now forecasting earnings of $25 to $25.40 per share in 2025.
Northrop Grumman is benefiting from having programs like the new bomber and the intercontinental ballistic missile replacement as priorities, no matter who is in charge in Washington. But the company did report a modest book-to-bill, saying it booked just $0.71 in new business in the quarter for every $1 it billed out.
This is a solid long-term hold, but investors should be cautious about jumping in now and chasing this post-earnings rally.
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Lou Whiteman has positions in Lockheed Martin. The Motley Fool recommends Lockheed Martin. The Motley Fool has a disclosure policy.
