The Aerospace industry is one of the industries I am very bullish on over the next 10-15 years. The commercialization of space travel and as well as the need for faster forms of military defense as technology grows will only amplify the industry. Aerospace manufacturing stocks are companies who typically make the products for the companies who embark on these lofty goals for space travel. While there are many household names such as Boeing ($BA), Lockheed Martin ($LMT), and Raytheon ($RTX), one company has the ability to go to toe to toe with the big names, but is often overlooked. Northrop Grumman ($NOC) has the contracts, missions, profitability and liquidity to be a big time player over the next decade as the aerospace industry – takes off.
What is Northrop Grumman All About?
Northrop Grumman is a global aerospace, defense, and security company, focusing business operations with the Department of Defense and intelligence community in the U.S. government. The company was originally founded in Denver in 1994 and its current CEO is Kathy Warden, acting since January 2019. With over 90,000 employees and several contracts with the United States Government, Northrop Grumman is one of the major players in the Aerospace Manufacturing industry. Governments in various countries tend to be their target market, however the U.S. accounts for about 86% of its revenue, and the rest is allies of the U.S, sold through the Department of Defense.
The operations of Northrop Grumman can be divided into four segments: Aeronautics Systems, Defense Systems, Mission Systems, and Space Systems. The mission statement of North Grumman is “to be at the forefront of technology and innovation, by delivering superior capability in tandem with maximized cost efficiencies. The security solutions we provide help secure freedoms for our nation as well as those of our allies.” They provide their customers with various aircraft, spacecraft, and aerial vehicles, as well as missiles, chain guns, and other military weapons.
Strengths: A strategically balanced portfolio of products, strong focus on innovation and development, and growth in revenue.
Weaknesses: High dependence on one customer which amplifies business risks.
Opportunities: Global aerospace and defense market, growing C4ISR systems market, worldwide increase in cyber security spending.
Threats: Stringent environmental and regulatory obligations for its nuclear-related operations could aversely affect financial position, changing technology, intense competition from well-established firms may negatively impact operations and financial condition.
Northrop Grumman’s focus on innovation is a strong reasoning for them remaining at the top of the Aerospace Manufacturing stocks list. Northrop continues its research in homeland and defense security through partnerships with several institutes and universities on the matter. In the fiscal year 2020, they spent over 1 billion dollars on their innovation and development activities, accounting for about 2.9% of their revenue allocated to propelling the company to higher heights. When you combine this with their attempts for low cost products compared to the industry, Northrop Grumman has a strong business strategy. Textron ($TXT) is a company also focused on low cost products, but it cannot keep up with the revenue of Northrop Grumman, In addition, an 8.7% growth in revenue from Fiscal Year 2019 to Fiscal Year 2020 shows a growing cash pile for a company strong already in operations.
Consistency is not a bad thing, as long as complacency has not set in. Over the past 5 years Northrop Grumman has pretty much stayed the same among all its profitability figures. In addition this consistency, Northrop Grumman has very good numbers, especially with a Gross Profit Margin over 20% in every year.
The nations of the Asian-Pacific have increased their focus on aerospace and defense in the past few years, and will continue to in the coming years. This is very important as it will open up for more customers for the industry, with some very pivotal nations in terms of military capability. Linchpin believes that low focus on innovation, especially risky innovation will continue in the future. This creates a solid window of opportunity for Northrop Grumman, considering their heavy focus on innovation. With a couple correct moves from research and development, Northrop could start to distance itself from some of the competition. Fuel has continued to climb in price, so it can be expected that the industry collectively looks to electric options for their vehicles.
Northrop Grumman is currently trading at about $360, with plenty of room for growth if Aerospace Manufacturing stocks rise with the growing space travel trend.