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Northrop Secures $41M Airborne Communication Device Deal

Defense giant Northrop Grumman Corp. NOC recently secured a contract to offer maintenance requirements for Battle Field Airborne Communication Node (BACN) E-11A platform support. Work related to this deal is expected to be over by Jan 23, 2019.

Details of the Deal

Per the deal, Northrop will provide logistics product support to four E-11A modified Bombardier BD-700 Global aircraft. Also, it will offer subsystems and support equipment for overseas contingency operations (OCO).

Valued at $41.3 million, this contract was awarded by the Air Force Life Cycle Management Center's Space, Aerial & Nuclear Networks Division Contracting Branch, Hanscom Air Force Base, MA. Northrop will utilize fiscal 2017 operations and maintenance OCO funds to close this agreement.

A Brief Note on BACN

Northrop’s BACN facilitates persistent communication ranging from small ground units to the highest command levels in battlefield. BACN combined with the company’s Global Hawk unmanned surveillance aircraft, provides fighters with essential information.

BACN’s Airborne Executive Processor (AEP) facilitates seamless communication among all participants in a battle. Therefore, integrating BACN into Global Hawk has optimized the communication capabilities by exploiting the operational flexibility and economic endurance of the platform. Global Hawk makes BACN available to support the war fighter 24/7.

Our View

We believe that the company has significant upside potential based on the U.S. government’s increased focus on Intelligence Surveillance Reconnaissance (ISR), unmanned systems, force protection, cyber security and missile defense.

Again, a rapid rise in terror attacks compelled the U.S. government to raise its defense budget substantially in 2017. This has led to the modernization of tactical equipment and modification of the existing ones. Going forward, the increased spending would be allocated to certain key areas that can unlock significantly higher opportunities for Northrop.

Meanwhile, Trump’s proposal to boost the nation’s defense budget by 10% in 2018 from that of 2016 is likely to benefit defense biggies like Northrop Grumman, Lockheed Martin Corp. LMT, General Dynamics Corp. GD and Huntington Ingalls Industries, Inc. HII. A moderate flow of funds from the Pentagon has added to the optimism.

Price Movement

Northrop’s stock has been up 19.4% in the last one year, underperforming the Zacks categorized Aerospace–Defense industry’s gain of 26.7%. This could be because higher operating expenses continue to partially impact the company’s profit margin. Moreover, the company faces stiff competition from other defense majors in the nation.

Zacks Rank

Northrop currently holds a Zacks Rank #2 (Buy). You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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