Fortunately for this sector the main opportunities for ships are in fulfilling existing contracts and the delivery of two Virginia-class submarines in the 2012 timeframe which are on schedule for delivery. As post-Katrina efforts to get production back on schedule continue it's believed the company can generate 8% margin in this specific sector going into FY 2007.
In summary, the table Analysis of Key Business Segments shows the success the company has had in distributing revenue over more segments, thereby alleviating risk while being able to position itself to take advantage of greater market opportunities in the process. The growth Mission Systems and Space technology, while much of the product development is confidential, show strong revenue and income growth which will continue given budgeting for space-based monitoring and defense systems.
Analysis of Key Business Segments
Revenues 12/31/2005 (%) 12/31/2004 (%) 12/31/2003 (%) 12/31/2002 (%) 12/31/2001 (%) Electronic Systems 6,042,000 20% 6,417,000 21% 6,039,000 22% 5,339,000 30% 4,719,000 34% Information Technology 4,999,000 16% 5,051,000 16% 4,754,000 18% 4,237,000 24% 3,783,000 27% Integrated Systems 5,550,000 18% 4,742,000 15% 3,800,000 14% 3,273,000 19% 3,001,000 22% Ships 5,784,000 19% 6,252,000 20% 5,451,000 20% 4,712,000 27% 1,880,000 14% Mission Systems 4,959,000 16% 4,947,000 16% 4,115,000 15% -- Space Technology 3,345,000 11% 3,269,000 11% 2,823,000 10% -- Component Technologies -- 427,000 3% Totals 30,679,000 100% 30,678,000 100% 26,982,000 100% 17,561,000 100% 13,810,000 100% Operating Income 12/31/2005 (%) 12/31/2004 (%) 12/31/2003 (%) 12/31/2002 (%) 12/31/2001 (%) Electronic Systems 710,000 29% 670,000 29% 590,000 30% 435,000 33% 359,000 47% Information Technology 355,000 15% 301,000 13% 281,000 14% 249,000 19% 170,000 22% Integrated Systems 474,000 20% 412,000 18% 380,000 19% 331,000 25% 258,000 34% Ships 241,000 10% 389,000 17% 295,000 15% 306,000 23% 19,000 2% Mission Systems 381,000 16% 321,000 14% 258,000 13% -- Space Technology 255,000 11% 222,000 10% 193,000 10% -- Component Technologies -- -38,000 -5% Totals 2,416,000 100% 2,315,000 100% 1,997,000 100% 1,321,000 100% 768,000 100%
Five Year Performance Analysis
In terms of overall financial performance the company has been able to stabilize and slightly grow corporate wide net profit margins, while greatly increasing overall Return on Equity (ROE) through the use of better project management and the aggressive growth of the Information & Services sector. Additionally, Northrop-Grumman...
The bottom line is that the company is well-positioned to attain its guidance of $31B in Sales with an operating margin of 7%, which is what the company delivered at the close of last year.
Northrop Grumman Corp Ratio Analysis
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Risk Assessment of Northrop-Grumman Stock
The following are the consensus risks as sampled from the investment analysts who attended the Northrop Grumman Investor's Conference November 9, 2006:
Slight risk of a reduction in defense spending in the near-term is counterbalanced by contracts now in execution phase of development.
Continued difficulties with the Shipbuilding operation due to the costs of reconstructing production centers destroyed by Hurricane Katrina.
The company's greatest risks come from budget and cost over-runs that could lead to project cancellations in the aerospace and defense sectors.
Continual competition from the large-cap defense contractors who also bid on all projects Northrop Grumman competes for.
Opinions of Financial Analysts
The majority of investment analysts including those from Credit Suisse, CIBC World Markets, Jeffries & Company, JP Morgan, and ValueLine agree that the stock valuation for Northrop-Grumman has strong up-side potential as many of its largest programs are already in progress and have a low probability of being cancelled. In addition the company's being awarded a $2.5B contract by the U.S. Nay for the LPD-17 type ships in June helped boost total new contracts for Ships by 290%. The gating item to attaining this growth is completing the rebuilding of…
References
CIBC World Markets (2006) - Northrop Grumman Highlights from NOC 2006 Analyst Day. November 10, 2006. Edwin Keller and Myles Walton.
Credit Suisse (2006) - Opportunities and Challenges: Northrop Grumman Corporation. Credit Suisse Equity Research United States. Published Date 10 November, 2006.
Northrop Grumman Corporation (2006) - Company profile completed by Data Monitor Corporation. August, 2006. Accessed using EBSCO Host on November 19, 2006
Northrop Grumman Equity Research (2006) - JP Morgan North American Equity Research. JP Morgan Securities. Publish Date 10 November 2006
The company seeks to align its core strengths with the Quadrennial Defense Review that sets the course for the country's security initiatives for the coming four years as a means to increase its share of defense contracts (2009 Annual Report). Thus, the company's strategic initiatives are driven by what it expects government defense policy will be in the coming years. As of the fall of 2009, the company did
Clearly the ability to transform critical new product development, supply chain, sourcing and material yield and optimization strategies has paid off, as indicated by the exceptionally strong inventory turns a year in the latest fiscal period (29.78). This was also achieved in FY 2008 and due to several acquisitions during FY 2007 BAE Systems posted 52.31 inventory turns due to the consolidation of financial statements and operations with companies