Northrop Grumman cut at Bernstein as key catalysts delayed

Northrop Grumman (NYSE:NOC) -1.4% in Friday’s trading as Bernstein downgrades shares to Market Perform from Outperform with a $477 price target, cut from $535, anticipating a longer wait for key catalysts with the Department of Defense budget constrained by legislators.

Bernstein’s case for an Outperform rating had been Northrop’s (NOC) technology position at a time when the DoD became more focused on technology relative to force structure, with positioning in space, the B-21 bomber, and the ground-based strategic deterrent setting the company on a strong growth path.

All of this is now in the context of DoD budgets tightly constrained by Congress, Bernstein analyst Douglas Hamed said in his downgrade, adding that Northrop’s (NOC) opportunities remain but the catalysts for investors will come later.

Hamed says the B-21 will lose money on LRIP contracts through 2030 and pricing afterward is set to improve with full rate production, but it is unclear how much margin will be available on the next 19 aircraft, Sentinel initial operating capability is now delayed until 2032, and space revenues are now expected to be flat after cancellation of a classified program, loss of NGI, and flattening of the DoD’s space budget.