Northrop Grumman To See Steady Growth In 2025 Despite Challenges, Says Analyst

Truist Securities analyst Michael Ciarmoli reiterated a Buy rating on the shares of Northrop Grumman Corp NOC with a price forecast of $545.

The company reported fourth-quarter sales that were flat year over year at $10.686 billion with an MTM-adjusted earnings per share of $6.39.

Space Systems (SS) is expected to show improvement throughout 2025, with the restructuring complementing both Aeronautics Systems (AS) and Defense Systems (DS) for the year, said the analyst.

Alongside the guidance released in the earnings report, management provided further details on the factors influencing their 2025 forecast.

Revenues are anticipated to remain roughly unchanged in the first quarter of 2025 as the challenges from NGI and classified programs subside.

By the second half of 2025, SS is projected to return to growth, with margins expected to reach approximately 10% for the year.

Overall, consolidated segment margins should increase throughout the year in line with revenue growth, with management forecasting about a 10-basis-point overall margin expansion for the year.

The restructuring, which involves shifting the sustainment business from DS to AS, is expected to result in margin accretion. This move, along with the focus of DS on strategic weapons, tactical missiles, and command and control systems, will generate synergies between the two segments.

International expansion continues to gain momentum, with no indication of slowing down, per the analyst. NOC reaffirmed its outlook for strong international demand in 2025, forecasting double-digit revenue growth in foreign markets that will surpass domestic growth.

After experiencing margin pressure earlier in 2024 due to business scaling, MS is now projected to see around 50 basis points of margin growth, leading to an estimated margin of approximately 14.5% for 2025.

As the B-21’s capabilities are validated through ongoing test flights, management mentioned that discussions are underway about potentially increasing the total order volume for the aircraft over the program’s lifespan.

There were no significant updates on the Sentinel program. Both programs are expected to show steady growth in 2025, although they will still contribute less than 10% of total revenue, per the analyst.

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RBC Capital Markets analyst Ken Herbert reiterated a Sector Perform rating on the shares and lowered the price target from $530 to $500.

Although total revenue slightly fell short of expectations, segment operating margins surpassed forecasts, reaching 11.2% for the company as a whole, said the analyst.

While the limited margin expansion in 2025 may be a challenge for sentiment, the analyst believes NOC is positioned for significant margin growth in 2026.

Although NOC’s international sales make up only around 12% of total revenue, the strong growth has the potential for extended benefits, potentially offering additional upside in 2026-2027.

The B-21, which represents about 8% of 2025 sales, is expected to maintain strong political backing, though there are concerns about the growth rate of the Sentinel program, per the analyst.

The price forecast is based on a 20.5x multiple on the 2026 FCF estimate of ~$3.45 billion.

Price Action: NOC shares are trading higher by 0.43% at $485.45 at the last check Friday.

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