Northrop Grumman Corporation (NYSE:NOC) has just won a major military contract from the U.S. Department of Defense, but its stock is currently down amid a broader market decline. However, the world’s best money managers appear to have foreseen in the second quarter this major win for the defense contractor.
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According to the U.S. Department of Defense’s daily digest of contracts, Northrop Grumman Corporation (NYSE:NOC) has been awarded a $3.2 billion contract by the U.S. Air Force for the development, upgrade and maintenance of Global Hawk surveillance drones. The firm makes varied models of the drone for the U.S. Air Force and the U.S. Navy. The contract is of the indefinite delivery and indefinite quantity kind which means that the Air Force can order parts and services as the need arises up to September 30, 2020. All work under the contract will have to be finished by September 30, 2025.
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The new Northrop Grumman contract follows a senior U.S. Air Force official saying earlier this month that upgrades to the Air Force Global Hawk fleet may cost just half of the previous estimate of $4 billion, Reuters reported. The upgrades discussed by Lieutenant General Robert Otto, deputy chief of staff for intelligence, surveillance and reconnaissance, were for a new sensor and optical camera for the drone. It is unclear, however, whether these upgrades are part of the multi-billion contract Northrop Grumman has just been awarded. The Air Force is also still flying Lockheed Martin Corporation (NYSE:LMT)’s U-2 spy planes, but General Otto told Reuters that the Air Force cannot maintain both the Global Hawk and the U-2 programs. The upgrades to the Northrop Grumman drones comes as the Air Force is expected to retire its U-2 planes.
Also, earlier this month, Northrop Grumman announced that its board has approved an additional $4 billion for its stock buyback plan. By the end of June, the firm had bought back over 54 million shares. In December 2014, the company’s board of directors approved a $3 billion stock repurchase plan. The firm plans to repurchase a total of 60 million shares by the end of this year.
While there was a slight ebb of hedge fund investment in Northrop Grumman Corporation (NYSE:NOC), the smart money was still bullish on the stock at the end of the second quarter. There were 32 hedge funds long Northrop Grumman at the end of June, down by three from the end of March, while the total value of their holdings decreased to $1.87 billion from $1.94 billion. However, this still represented 6.10% of the company at the end of June. The largest investor in Northrop Grumman was First Eagle Investment Management, which owned about 5.89 million shares of the defense firm, while AQR Capital Management, led by Cliff Asness, owned 2.47 million shares.
Analysts agree with hedge funds. While there is one analyst who has a ‘Sell’ rating on the stock, seven analysts have ‘Hold’ ratings, five analysts have ‘Buy’ ratings, and one analyst has a ‘Strong Buy’ rating. The consensus price target on the stock is at $171.25 per share, which represents an upside of around 3%.
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