Northrop Signs Coast Guard Deal - Analyst Blog

Defense contractor Northrop Grumman Corporation (NOC) won an $89 million contract from the U.S. Coast Guard. The contract has certain options that can increase the potential value of the contract to $94 million.

Under the contract, Northrop will supply long-lead materials for the fifth National Security Cutter (NSC) - the Legend-Class cutters. These Legend-Class cutters will replace the 378-ft Hamilton class High Endurance Cutters, which entered service during the 1960s. Northrop will progress with the shipbuilding work for the contract at its Pascagoula facility.

The Legend-Class cutters are the flagships of the Coast Guard fleet capable of meeting all maritime security mission needs. It is the largest and technologically the most advanced class of cutters in the U.S. Coast Guard. This class of cutters plays an important role in enhancing the Coast Guard's operational readiness, capacity and effectiveness at a time when the demand for their services has never been greater.

This contract demonstrates the Coast Guard's ongoing commitment to the National Security Cutter program and continued confidence in Northrop's Shipbuilding.

Two of eight planned National Security Cutters have been commissioned and are executing Coast Guard missions. The third ship, Stratton, is now 75% complete and scheduled for delivery in 2011. The fourth ship received a construction contract on November 29, 2010, with construction work at the ship expected to begin in mid-2011.

National Security Cutters are 418-feet long, with a 54-foot beam, displacing 4,400 tons with a full load. It will have a top speed of 28 knots, a range of 12,000 miles, an endurance of 60 days and a crew of 110.

Los Angeles-based Northrop Grumman Corporation is one of the world's leading shipbuilders and the third largest defense contractor, after The Boeing Company (BA) and Lockheed Martin Corporation (LMT), in the U.S. in terms of trailing twelve months sales.

Northrop Grumman provides products, services and solutions in respect to information and services, aerospace, electronics and shipbuilding to the military, government and commercial customers in the United States and beyond.

Northrop is scheduled to release its fourth-quarter and fiscal 2010 operating results on February 2, 2011. The company estimates 2010 earnings per share in a range of $6.85 to $7.00, which is substantially above the Zacks Consensus estimate of $6.51 per share. The Zacks Consensus Estimates for fourth-quarter 2010 and fiscal year 2011 are $1.01 and $6.97 per share, respectively.

Northrop presently has a Zacks #3 Rank (short-term Hold recommendation) on the shares. We also maintain our "Neutral" long-term recommendation on the stock.

 
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