Northrop Grumman: Best Growth You Can Get In Large-Cap Defense

Baird designated Northrop Grumman Corporation NOC as the best growth profile stock in the large-cap defense space. The firm expects revenue growth for the company between 2017 and 2020 to be in the mid-single digits following an estimated 1.5 percent for 2016.

Peter Arment, an analyst at the firm, attributes the prospect for the 2017–2020 period to the F-35 ramp, Triton UAV, E-2D and the B-21 bomber.

FY17–FY20 Estimates

Baird forecasts 2017–2020 earnings per estimate of $11.70, $13.35, $14.90 and $16.10, respectively, with the estimates taking into account accelerating top-line and stable margin performance in its three segments of Aerospace, Mission Systems and Technology Services. Over the next four years, the firm forecasts the company to average FCF conversion to net income of 100-plus percent.

Related Link: As Domestic Government Budgets Inflect Higher, Raytheon Shares Poised To Ramp Up

Buy On Dips

Baird believes rising defense budgets, strategic portfolio wins and a very shareholder-friendly management team could make Northrop Grumman an excellent portfolio stock. The firm advises to use pullbacks to buy for the long term.

Baird initiated Northrop Grumman at Outperform and has a $260 price target for the shares of the company, as it thinks investors will look through negatives such as valuation and more range bound margins in the near term and focus on the long term regarding robust earnings per share and free cash flow.

At the time of writing, Northrop Grumman was up 1.04 percent at $214.68.

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