Northrop Grumman Corp.’s stock fell before the opening bell on Thursday after the defense contractor reported third-quarter results that missed on the top and bottom lines and delivered a weak outlook.
Before market open, the defense contractor reported earnings of $5.89 a share, which included an 18-cent unfavorable impact from marketable securities, compared with earnings of $6.63 a share in the same period last year. Analysts surveyed by FactSet were looking for earnings of $6.08 a share.
Northrop Grumman reported revenue of $8.971 billion, compared with sales of $8.72 billion in the same period last year. Analysts surveyed by FactSet were looking for revenue of $9.128 billion.
The company expects 2022 sales and earnings per share near the low end of its guidance ranges of approximately $36.2 billion to $36.6 billion and $24.50 to $25.10, respectively.
While the results weighed initially on Northrop Grumman’s stock, Vertical Research Partners analyst Robert Stallard highlighted strong growth in the company’s space business, which offset shortfalls in its aeronautics- and defense-systems divisions.
Vertical Research Partners has a hold rating and $493 price target for Northrop Grumman.
Third-quarter revenue from Northrop Grumman’s space business was $3.163 billion, an 18% increase on $2.681 billion in the prior year’s quarter. In contrast, aeronautics-systems revenue was $2.537 billion, down 7% from $2.725 billion in the same period last year. Third-quarter defense-systems revenue was $1.345 billion, a 5% fall from $1.409 billion in the prior year’s quarter, while mission-systems revenue was $2.456 billion, a 1% increase from $2.436 billion in the same period last year.
Northrop Grumman is heavily involved in space exploration. The company is supporting NASA’s Artemis program by providing the solid rocket boosters for the Space Launch System and motors for the Orion spacecraft’s Launch Abort System.
The Artemis program aims to return U.S. astronauts to the moon.
Northrop Grumman also designed and built the tennis-court-size sunshield for NASA’s James Webb space telescope.
The defense company said its third-quarter sales reflect strong demand and improving trends in labor availability, partially offset by supply-chain delays.
“Our solid operating performance in the third quarter reflects extensive demand for our capabilities, positive trends in labor availability, and strong program execution,” said Kathy Warden, the company’s chair, chief executive officer and president, in the earnings release.
Northrop Grumman’s stock has risen 37.4% this year, compared with Lockheed Martin Corp.’s
rise of 32.8% and L3Harris Technologies Inc.’s
gain of 19%. Raytheon Technologies Corp.’s
stock is up 8% in 2022, while the S&P 500 Index is down 19.1%.
Earlier this month, JPMorgan downgraded Northrop Grumman to neutral, citing 52 points of outperformance versus the market in 2022, compared with 14 points and 23 points, respectively, at rivals Lockheed Martin and L3Harris Technologies. JPMorgan said there is still a lot to like about Northrop Grumman: “Just because NOC’s positive attributes are widely appreciated does not make them less appealing,” analyst Seth Seifman wrote. The analyst pointed to Northrop Grumman’s B-21 aircraft program and its Ground Based Strategic Deterrent programs as the “franchise programs” of this decade, which should contribute to years of growth.
In partnership with the U.S. Air Force, Northrop Grumman will unveil the B-21 Raider at its facility in Palmdale, Calif., on Dec. 2.
Seifman also noted that Northrop Grumman is a leader in space, which is a top priority for the Department of Defense. “Strategically, we think Northrop has a strong sense of what it is and where it’s going,” he added.
Of 21 analysts surveyed by FactSet, 12 have an overweight or buy rating, eight have a hold rating, and one has an underweight rating.