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Reiterating his bullish case for Northrop Grumman Corporation (NOC), Zacks defense industry analyst Jon Kolb explains why the future looks bright for the defense and aerospace company:
'Northrop Grumman offers a strong program portfolio positioned to take advantage of high-growth areas in the defense budget, an improving balance sheet, and an ongoing share repurchase program. Favorable projected revenue, the acquisition of Scaled Composites, diversified revenue and earnings streams with strong growth and discounted relative valuation metrics collectively support our bullish outlook for NOC.
'Northrop Grumman is a margin-upside and cash redeployment story, in our view, with additional positive evidence in the recent 3rd quarter of 2007. During 2006, contract acquisitions reached a company record of $38.8 billion and a book-to-bill ratio of nearly 130%.
'Furthermore, the company ended fiscal year 2006 with a record backlog of $61 billion which lays a great foundation for future organic growth. The record has already been improved with total backlog touching $64.1 billion in the first three quarters of 2007. In addition, the company recorded improved total revenue during the 3rd quarter of 2007, owing to strong operating performance witnessed at all the company's operating segments, except the Information Services segment.
'We remain confident that NOC will continue to reach new historic highs over the next six months with an outperforming total return relative to the broader stock market and the aerospace and defense industry. Accordingly, we maintain our BUY recommendation on NOC with a six-month target price of $91.00 or 17.9x and 16.3x, respectively, our 2007 and 2008 EPS estimates.
'Price appreciation to our near-term valuation target coupled with the company's recently increased $0.37 per share quarterly cash dividend, which we view as sustainable and secure, based upon low projected earnings payouts represents annualized total return potential of 23.7%.'
Read the full analyst report on NOC.
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