Northrop Grumman Q3 Earnings: Can NYSE:NOC Hit Its $5.60 EPS Target?

in EARNINGS/INVESTING IDEAS by

Northrop Grumman Corporation (NYSE:NOC) is scheduled to report Q3 earnings results before markets open for trading on October 22, 2020.

The company is expected to report earnings of $5.60/share on revenue of $8.855 billion. The consensus earnings per share (EPS) of $5.60/share is based on a poll of 18 analysts and represents a growth in eps of 2.1% over the same quarter last year, when the company reported earnings of $5.49/share.

The revenue forecast of $8.855 billion based on a poll of 15 analysts implies a year-over-year (YoY) growth in revenue of 4.5%. Last year the company reported $8.475 billion in revenue for the quarter.

Expected to report EPS growth of 2.1% for Q3, 2020
Metric Expected Prior Year YoY Change
Revenue $8,855.22 $8,475.00 4.5%
EPS $5.60 $5.49 2.1%

Earnings Call Trends

Historically, management has exceeded analyst expectations 6 out of the last 8 tracked quarters, and missed expectations 2 quarters.

What are your expectations from Northrop Grumman Corporation for earnings this quarter? Let us know in the comments!

Analyst Expected vs. Reported EPS
Quarter Expected Reported Surprise Result
Q2, 2020 $5.28 $6.01 13.8% Beat
Q1, 2020 $5.49 $5.15 −6.2% Missed
Q4, 2019 $4.77 $5.61 17.6% Beat
Q3, 2019 $4.76 $5.49 15.4% Beat
Q2, 2019 $4.65 $5.06 8.8% Beat
Q1, 2019 $4.60 $5.06 10.0% Beat
Q4, 2018 $4.45 $3.81 −14.4% Missed
Q3, 2018 $4.36 $6.54 49.9% Beat

In the following table, we summarize the company’s stock price movements after earnings releases. The “Price Day Prior” column shows the closing stock price on the day before the earnings report, and the “Price Next Day” column shows the stock price at the end of the trading day after the earnings report. After the last earnings report for the period ending June 30, 2020, the stock price reacted by increasing 3.1%.

Stock Price Performance After Earnings
Report Date Price Day Prior Price Next Day Change % Result
July 30, 2020 $315.26 $325.01 3.1% Increase
April 29, 2020 $344.53 $330.67 −4.0% Decline
January 30, 2020 $382.65 $374.57 −2.1% Decline
October 24, 2019 $353.20 $345 −2.3% Decline

The other question to consider is one of earnings manipulation. There is a lot of pressure on management each quarter to deliver on earnings expectations. The Beneish M-Score is a statistical model that provides some insight into whether the company might be manipulating earnings. With a Beneish M-Score of −2.84, the model suggests that the company is not likely to be an earnings manipulator. A value of −2.84 implies a 0.2% chance of earnings manipulation.

Fundamentals And Technical Analysis

Northrop Grumman Corporation is currently trading at $311.33/share, down −1.6% for the day. The company is trading at approximately 80.9% of its 52-week high of $385/share. The company’s stock price is down −4.2% since the last earnings report and down −0.4% over the previous week.

The company’s 14 Day Relative Price Index (RSI) of 38.32 suggests the company is trading in technically neutral territory. The RSI is considered overbought when above 70 and oversold when below 30.


NYSE:NOC Stock Price Chart
Source: Finbox

The current share price implies a price-to-earnings (P/E) multiple of 21.65 and a forward P/E multiple of 13.97.

Northrop Grumman Corporation’s current share price also implies a price-to-book (P/B) multiple of 5.34. The following table summarizes some other key fundamental ratios:

Data as of October 20, 2020
Metric Value
Last Reported Fiscal Period Key FY2020.Q2
Period End Date June 30, 2020
Stock Price (Current) $311.33
P/E Ratio 21.7x
P/E Ratio (Fwd) 14.0x
PEG Ratio −0.8
Total Debt / Total Capital 24.7%
Levered Free Cash Flow $3.678 billion
EV / EBITDA 15.3x

Finbox

Northrop Grumman Corporation is a large-cap stock with a market capitalization of $51.903 billion and a total enterprise value of $64.772 billion. The company operates in the Industrials sector and the Aerospace & Defense industry.

Northrop Grumman Corporation operates as a security company. It provides various systems, products, and solutions in autonomous systems, cyber, space, strike, and logistics and modernization, as well as in command, control, communications and computers, intelligence, surveillance, and reconnaissance (C4ISR) to customers in the United States and internationally. The company operates through Aeronautics Systems, Defense Systems, Mission Systems, and Space Systems segments. It designs, develops, integrates, and produces manned aircrafts, autonomous systems, spacecraft systems, high-energy laser systems, microelectronics, and other systems and sub-systems for use in the areas of intelligence, surveillance and reconnaissance, strike operations, communications, earth observations, and space science. The company also designs, develops, integrates, and produces flights, armaments, and space systems to enable national security, civil government, and commercial customers in achieving their critical missions. Its space systems include launch vehicles and related propulsion systems; missile products and defense electronics; precision weapons, armament systems and ammunition; satellites and associated space components and services; and aerospace structures. In addition, it offers C4ISR systems; radar, electro-optical/infrared, and acoustic sensors; electronic warfare systems; cyber solutions; space and intelligence processing systems; air and missile defense integration systems; navigation systems; and shipboard missiles and encapsulated payload launch systems. Further, the company provides life-cycle solutions and services in support of networks and systems, including sustainment, modernization, training and simulation, software, engineering services, cyber, rapidly-deployable global logistics, and information technology. The company was founded in 1939 and is based in Falls Church, Virginia.

Expertise: financial modeling, mergers & acquisitions. Andy is also a founder at finbox.io, where he’s focused on building tools that make it faster and easier for investors to do investment research. Andy’s background is in investment banking where he led the analysis on over 50 board advisory engagements involving mergers and acquisitions, fairness opinions and solvency opinions. Some of his board advisory highlights: - Sears Holdings Corp.’s $620 mm spin-off via rights offering of Sears Outlet, Hometown Stores and Sears Hardware Stores. - Cerberus Capital Management’s $3.3 bn acquisition of SUPERVALU Inc.’s New Albertsons, Inc. assets. Andy can be reached at andy@finbox.io or at +1 (516) 778-6257.

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