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Bull: Global threat environment drives sustained defense spending increases.
Severe Budget Sequestration: A deeply divided Congress enforces strict defense budget caps, halting modernization of the nuclear triad and capping space spending.
Northrop Grumman is a high-quality, mature compounder operating within a highly concentrated defense oligopoly. Its entrenched position in critical, long-cycle U.S. strategic deterrent programs (space, advanced aeronautics, nuclear triad modernization) provides exceptional revenue visibility and high barriers to entry.
Northrop Grumman is a high-quality, mature compounder operating within a highly concentrated defense oligopoly. Its entrenched position in critical, long-cycle U.S. strategic deterrent programs (space, advanced aeronautics, nuclear triad modernization) provides exceptional revenue visibility and high barriers to entry.
Intangible Assets (Patents, clearances, proprietary tech)
Switching Costs (Long product life cycles, high integration)
Accelerating global defense spending and space commercialization.
Buy. The valuation is fundamentally supported by normalized cash flow generation, respects the capex cycle, and matches internal valuation cross-checks perfectly.
Northrop Grumman Corporation operates as an aerospace and defense technology company in the United States, Asia/Pacific, Europe, and internationally. It operates through four segments: Aeronautics Systems, Defense Systems, Mission Systems and Space Systems. The Aeronautics Systems segment designs, develops, produces, integrates, sustains, and modernizes aircraft systems. This segment also offers unmanned autonomous aircraft systems, including high-altitude long-endurance strategic, surveillance and reconnaissance systems; and strategic long-range strike aircraft, tactical fighter and air dominance aircraft, and airborne battle management and command and control systems. Its Defense Systems segment designs, develops, integrates, and produces strategic deterrent systems, tactical weapons, and missile defense solutions; and provides sustainment, modernization, and training services for manned and unmanned aircraft and electronics systems. This segment also offers strategic missiles; integrated all-domain command and control systems; precision strike weapons; tactical solid rocket motors, and high-speed air-breathing and hypersonic systems; high-performance gun systems, ammunition, precision munitions, and advanced fuzes; and sustainment, operation, and modernization. The Mission Systems segment provides command, control, communication and computer, intelligence, surveillance, and reconnaissance systems; radar, electro-optical/infrared, and acoustic sensors; electronic warfare systems; advanced communications and network systems; microelectronics; navigation and positioning sensors; maritime power, propulsion, and payload launch systems; cyber solutions; and intelligence processing systems. Its Space Systems segment offers satellites, spacecraft systems, subsystems, sensors, and payloads; ground systems; missile defense systems and interceptors; and launch vehicles and related propulsion systems. The company was founded in 1939 and is based in Falls Church, Virginia.
A prolonged U.S. government continuing resolution combined with unexpected inflation in fixed-price development contracts.
Intangible Assets (Patents, clearances, proprietary tech)
Switching Costs (Long product life cycles, high integration)
Efficient Scale (High barrier to entry, oligopoly structure)
Economic profit is supported when reported returns exceed the company cost-of-capital hurdle.
Unavailable
FCFF DCF remains positive at the base case: base FCFF $4.8B after capex $1.4B, with terminal value at 84.2% of enterprise value. No FCF cliff is projected unless capex/ or materially resets.
If margins expand >11%, stock re-rates higher. If margins compress <10%, expect a multiple contraction.
If margins expand >11%, stock re-rates higher. If margins compress <10%, expect a multiple contraction.
If margins expand >11%, stock re-rates higher. If margins compress <10%, expect a multiple contraction.
If margins expand >11%, stock re-rates higher. If margins compress <10%, expect a multiple contraction.
Transitioning from low-margin development to higher-margin production.
Accelerating global defense spending and space commercialization.
U.S. defense budget constraints or continuing resolutions disrupt contract timing.
Transitioning from low-margin development to higher-margin production.
Core holding for conservative growth and dividend portfolios.
Trim above $900 or if operating margins fall below 10%.
Strong Buy. The weighted composite valuation implies significant upside to the $725 fair value midpoint.
Buy. The weighted composite valuation implies significant upside to the $725 fair value midpoint.
Reassess the thesis against the named valuation, risk, and quarterly checkpoint evidence in this report.
Capture your own thesis, position size, and follow-up questions. Stays on this device, only you can see it.
Budget constraints and continuing resolutions disrupt contract timing. Inflationary pressures compress margins on fixed-price development contracts.
A deeply divided Congress enforces strict defense budget caps, halting modernization of the nuclear triad and capping space spending.
The B-21 Raider program encounters severe technical hurdles leading to massive cost overruns on fixed-price lots.
Rapid advancements by commercial space entities fully disrupt Northrop's military space and satellite businesses.
The five developments that would weaken our investment case.
Operating profitability sinking past this boundary would highlight severe execution friction across major programs or inability to absorb production cost inflation, eroding baseline net income and forcing multiple de-ratings across defense peer comparisons.
Current:10.2% for the period ended 2025-12-31
Alert ifFalls below 10.0% over any trailing twelve-month period
Persistent manufacturing headwinds or reach-forward losses on fixed-price aerospace development lots would erode product gross profitability, undermining production scale economics and limiting cash generation necessary to fund ongoing defense development commitments.
Current:19.8% for the period ended 2025-12-31
Alert ifCompresses below 18.0% over any fiscal year
Contraction in top-line growth driven by legislative funding friction or delays in prime contract awards would jeopardize multi-year revenue expansion, restricting overall scale advantages and reducing long-term cash flow predictability across core defense franchises.
Current:2.2% for the period ended 2025-12-31
Alert ifDrops below 0.0% YoY over two consecutive quarters
A persistent decline in conversion efficiency signals unfavorable working capital build, milestone billing delays, or elevated capital requirements that restrict discretionary capital deployment, reducing funds available for shareholder returns and debt reduction.
Current:1.137 as of the 2026-05-13 analysis date
Alert ifDips below 1.00x over any trailing twelve-month period
Diminishing capital productivity suggests that heavy ongoing investments in major defense franchises are failing to generate sufficient operating returns, eroding economic moat strength and destroying shareholder value relative to the company cost of capital.
Current:13.4% as of the 2026-05-13 analysis date
Alert ifDeclines below 11.0% over any fiscal year
Each lens answers a different valuation question. Only included lenses set Fair value; floors and diagnostics provide context.
Project SBC-adjusted EPS, discount each year's earnings at cost of equity, then add a Gordon-growth terminal value.
Project EPS through the explicit advantage period, fade growth as competition catches up, and discount the full stream at cost of equity.
Apply a terminal P/E to the dated forward EPS path, then discount that future share value back to the analysis date.
Convert the revenue and margin path into after-tax free cash flow, discount the annual per-share amounts and at , then adjust for signed per current share.
Add depreciation to net income, subtract maintenance capex, divide by diluted shares, and apply a normalized valuation multiple.
Solve for the growth rate that makes the model value equal the report-date share price.
Global threat environment drives sustained defense spending increases. Margin expansion accelerates as major programs scale into production.
Northrop Grumman maintains its entrenched position in critical strategic deterrent programs, providing exceptional revenue visibility.
Warning level: Falls below 10.0% over any trailing twelve-month period. Operating profitability sinking past this boundary would highlight severe execution friction across major programs or inability to absorb production cost inflation, eroding baseline net income and forcing multiple de-ratings across defense peer comparisons.
Warning level: Compresses below 18.0% over any fiscal year. Persistent manufacturing headwinds or reach-forward losses on fixed-price aerospace development lots would erode product gross profitability, undermining production scale economics and limiting cash generation necessary to fund ongoing defense development commitments.
Warning level: Drops below 0.0% YoY over two consecutive quarters. Contraction in top-line growth driven by legislative funding friction or delays in prime contract awards would jeopardize multi-year revenue expansion, restricting overall scale advantages and reducing long-term cash flow predictability across core defense franchises.
Warning level: Dips below 1.00x over any trailing twelve-month period. A persistent decline in conversion efficiency signals unfavorable working capital build, milestone billing delays, or elevated capital requirements that restrict discretionary capital deployment, reducing funds available for shareholder returns and debt reduction.
Warning level: Declines below 11.0% over any fiscal year. Diminishing capital productivity suggests that heavy ongoing investments in major defense franchises are failing to generate sufficient operating returns, eroding economic moat strength and destroying shareholder value relative to the company cost of capital.
| $39.29B |
| $41.03B |
| $41.95B |
| +4.7% |
| Gross profit | $7.47B | $6.55B | $8.36B | $8.31B | +3.6% |
| Operating income | $6.34B | $2.89B | $5.64B | $5.73B | -3.3% |
| Net income | $4.90B | $2.06B | $4.17B | $4.18B | -5.1% |
| EPS (diluted) | $31.47 | $13.53 | $28.34 | $29.08 | -2.6% |
| EBITDA | $7.68B | $4.23B | $7.01B | $7.21B | -2.1% |
| R&D | — | — | — | — | — |
| SG&A | $3.87B | $4.01B | $3.99B | $4.03B | +1.4% |
Capital allocation should be evaluated against reinvestment needs, balance-sheet strength, and shareholder returns.
| Revenue | 41,954,000,000 |
|---|---|
| Cost of revenue | 33,641,000,000 |
| Gross profit | 8,313,000,000 |
| Operating expenses | 4,033,000,000 |
| Operating income | 4,280,000,000 |
| Non-operating items and tax | -98,000,000 |
| Net income | 4,182,000,000 |
| Total assets | 51,377,000,000 |
|---|---|
| Cash | 4,403,000,000 |
| Current assets | 15,287,000,000 |
| Total liabilities | 34,703,000,000 |
| Current liabilities | 13,882,000,000 |
| Shareholders’ equity | 16,674,000,000 |
Point-in-time financial data used in the 2026-05-13 analysis.
| Period | Revenue | EBITDA | Net income | Operating cash flow | Free cash flow | Capex | Depreciation and amortization | Stock-based compensation | Share repurchases | Dividends paid | Net debt issuance | Investing cash flow | Financing cash flow | Beginning cash | Ending cash | Cash and investments | Total debt | Operating margin | ROIC | WACC | ROIC − WACC spread |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2022-12-31 | 36.6B | 7.7B | 4.9B | 2.9B | 1.5B | 1.4B | 1.3B | 99M | 1.5B | 1.1B | 0 | — | — | — | — | 2.6B | 13.6B | 9.8% | — | 6.3% | — |
| 2023-12-31 | 39.3B | 4.2B | 2.1B | 3.9B | 2.1B | 1.8B | 1.3B | 87M | 1.5B | 1.1B | 945M | — | — | — | — | 3.1B | 15.7B | 6.5% | — | 5.8% | — |
| 2024-12-31 | 41B | 7B | 4.2B | 4.4B | 2.6B | 1.8B | 1.4B | 101M | 2.5B | 1.2B | 2.5B | — | — | — | — | 4.4B | 16.5B | 10.7% | — | 6.2% | — |
| 2025-12-31 | 42B | 7.2B | 4.2B | 4.8B | 3.3B | 1.5B | 1.5B | 119M | 1.6B | 1.3B | -502M | — | — | — | — | 4.4B | 17B | 10.2% | — | 5.2% | — |
NOC trades at 18.5x forward earnings against a peer median of 34.3x; EV/EBITDA of 13.0x against a peer median of 18.0x; 6 peers.
| Level | Action |
|---|---|
| Thesis break | Trim above $900 or if operating margins fall below 10%. |
| RTX Corporation |
| 23.7x |
| 2.7x |
| 18.0x |
| 11.6% |
| 13.2% |
| BA | The Boeing Company | 55.2x | 2.0x | -66.7x | 169.9% | 1.7% |
| LMT | Lockheed Martin Corporation | 16.2x | 1.6x | 17.4x | 67.6% | 11.0% |
| HWM | Howmet Aerospace Inc. | 45.3x | 12.5x | 43.1x | 33.8% | 28.2% |
