- Price
- $498.82
- Fair value
- $630.00
- Discount
- 20.8%
- Uncertainty
- Medium
- LSEG rating
- 2.26
- Moat
- Wide
- Next earnings
- 2026-10-20
- Next earnings is estimate
- No
- Company name
- Northrop Grumman
- Sector
- Aerospace & defense
- About
- Northrop Grumman is one of the largest US defense companies. It reports four segments: Aeronautics Systems, Defense Systems, Mission Systems and Space Systems. Its largest programs include the B-21 Raider stealth bomber, the Sentinel intercontinental ballistic missile, parts of the F-35, radars, electronic warfare, solid rocket motors, missiles and satellites. Most of its revenue comes from the US government, under cost-type and fixed-price contracts, and the rest from allied governments and some commercial space customers. It makes money from the margin on these contracts, and it books new awards into a backlog that it turns into revenue over many years. Backlog was a record $104.7 billion at June 30, 2026. For 2026, it guides sales of $43.75 billion to $44.25 billion.
- Thesis
- The market doubts that Northrop can turn its record backlog into profit. Several fixed-price programs cost more than planned. The company has booked about $2.0 billion of cumulative losses on the first production lots of the B-21 bomber, and in Q2 2026 it took a $68 million charge on the Stand-in Attack Weapon and a $91 million charge on the GEM 63XL rocket motor. Segment margin fell to 10.6% in Q2 2026 from 11.8% a year earlier. JPMorgan and TD Cowen said that a low tax rate of 6.3% gave most of the Q2 earnings beat. On September 29, 2026, the Pentagon chose Boeing for the Navy's F/A-XX fighter, so Northrop has no role in either US sixth-generation fighter program. Defense stocks also lost support in 2026 as the conflict with Iran moved away from active fighting. For the gap to close, Northrop must show that the backlog earns its planned margin. The checks are clear. Segment margin must return to about 11% with no new large charges. Adjusted free cash flow must reach the 2026 guidance of $3.1 billion to $3.5 billion. The B-21 must ramp to the higher production rate agreed in early 2026 with no new loss. Sentinel must stay on its new schedule. The FY2027 defense budget must fund B-21, Sentinel and missile defense at the planned levels. The first evidence comes with the Q3 2026 report on October 20, 2026, and the 2027 guidance comes in late January 2027. If margins recover and no new charge comes, the gap can close over the next four to six quarters. If fixed-price charges continue, the gap can stay into 2028.
- Risks
- Fixed-price development and early production contracts put cost overruns on Northrop. It has booked about $2.0 billion of cumulative losses on the first B-21 production lots, with $1.0 billion of the loss accrual still open at June 30, 2026. In Q2 2026, it also took charges on the Stand-in Attack Weapon and the GEM 63XL rocket motor. More charges would keep margins low.
The loss of the Navy's F/A-XX fighter on September 29, 2026 removes a large future program. Growth now depends more on B-21, Sentinel, missile defense and space programs.
Most revenue comes from the US government. Budget delays, a government shutdown, or a change in priorities can delay awards and payments. The company's 2026 guidance does not include the effect of a long shutdown or spending limits.
Sentinel went through a Nunn-McCurdy cost breach review in 2024 and was restructured. New cost growth or schedule changes on this large program can change its profit and timing.
Defense stocks move with the news on wars and conflicts. In 2026 they fell as the conflict with Iran moved toward a stalemate, even with a proposed increase in the 2027 defense budget.
- Balance sheet
- Cash: $2.3B
Debt: $15.2B
Net debt: $12.9B
Interest cover: 6.5×
Undrawn credit line: $3.0B, to September 2030
Debt due within 12 months: $763M
Northrop funds itself with unsecured senior notes of the parent and with cash from operations. Cash fell to $2.3 billion at June 30, 2026 from $4.4 billion at December 31, 2025, because cash flow is weak in the first part of each year: operating cash flow was negative $376 million in the first half of 2026. Debt is long-term debt of $14.4 billion plus a current part of $0.8 billion. There was no commercial paper at June 30, 2026, under a $3.0 billion program. Interest cover is operating income divided by interest expense for the first half of 2026. Pension plan assets of $3.4 billion are more than the pension liabilities of $1.1 billion on the balance sheet. In the first half of 2026, Northrop paid $684 million of dividends and bought back only $63 million of stock, against $872 million a year earlier. The company also expects to invest about $2.5 billion over several years to expand B-21 capacity.
As of 2026-06-30.
- Checkpoints
- Oct 20, 2026: Q3 2026 results: margins and program charges. Pending. Watch: Segment margin near 11% with no new large charge on a fixed-price program, and 2026 guidance kept or raised, pass; new charges or lower cash flow guidance fail.
Jan 2027 (estimate): Full-year 2026 results and 2027 guidance. Pending. Watch: Adjusted free cash flow of $3.1 billion to $3.5 billion for 2026 and 2027 guidance with higher segment margin pass; free cash flow below guidance or lower margin guidance fails.
2027 (estimate): FY2027 defense appropriations for B-21, Sentinel and missile defense. Pending. Watch: Full funding for B-21 at the higher production rate, Sentinel and missile defense passes; cuts or a long continuing resolution that delays these programs fail.
- Recent events
- 2026-10-10: The first 21 Tranche 1 Transport Layer satellites that Northrop built for the Space Development Agency launched. They are part of a military communications network in low Earth orbit.
2026-09-29: The Pentagon chose Boeing over Northrop for the Navy's F/A-XX carrier-based sixth-generation fighter. Reports put the development contract at more than $20 billion. Northrop said that it waits for more information about the decision. On September 30, its stock fell 3.5% in mid-day trading, near its 52-week low.
2026-09-29: The US Air Force and Northrop broke ground on a new B-21 final assembly line at Air Force Plant 42 in Palmdale, California. The line supports the higher production rate agreed in early 2026.
2026-09-17: Northrop said that it will report Q3 2026 results on October 20, 2026, before the market opens.
2026-08-19: The board gave CEO Kathy Warden a one-time grant of a target 35,910 market stock units that vest by the end of 2031. The payout depends on the stock price: none if the stock falls more than 25%, and the target only if it rises at least 10%.
2026-07-21: Northrop reported Q2 2026 sales of $10.9 billion, up 5%, and diluted EPS of $7.68. Net awards of $20.0 billion, including $7.6 billion for Sentinel, took backlog to a record $104.7 billion. Segment margin fell to 10.6% from 11.8% after charges of $68 million on the Stand-in Attack Weapon and $91 million on the GEM 63XL rocket motor. It raised 2026 sales guidance to $43.75 billion to $44.25 billion and MTM-adjusted EPS guidance to $28.60 to $29.10, but kept its operating income and free cash flow guidance. The stock fell 2.2% that day.
2026-05-19: Northrop raised its quarterly dividend by 7% to $2.47 per share from $2.31, payable on June 17, 2026.
2026-04-21: Northrop reported Q1 2026 sales of $9.9 billion, up 4%, and diluted EPS of $6.14. It reached agreements with the US Air Force to increase B-21 production capacity and to bring forward Sentinel's initial operating capability. It expects to invest about $2.5 billion over several years in more B-21 capacity.