Northrop Grumman Corporation NOC
Verdict: Sell. Fair value $499 against a price of $614 on 6 Jan 2026, 19% below the price.
In plain words
The case for: Wide competitive moat provides durability. Market leadership enables pricing power. Industry tailwinds with growing market.
The case against: Macro headwinds could impact growth. Valuation multiple compression risk.
Main risks
- Poor FCF Conversion & Margin: TTM FCF is only $1.83B vs. 2024 Net Income of $4.17B. The TTM FCF margin of 4.5% is thin, indicating weak cash generation relative to sales.
- Erratic Net Income: Net Income has been highly volatile ($7.0B in 2021, $2.06B in 2023, $4.17B in 2024), suggesting lumpy project recognition, one-off charges, or underlying earnings instability.
- Inefficient Capital Allocation & High Leverage: The calculated 3-year ROIIC is a very poor 6.1%, suggesting new investments are not generating adequate returns. This is coupled with a high Debt/Equity ratio of 1.08 and a high Debt/EBITDA of 4.8x.
- Valuation prices in optimistic scenario (limited margin for error)
- Market volatility
- Execution risk