Northrop Grumman Corp (NYSE:NOC)

CAPS Rating: 4 out of 5

The Company provides technologically advanced, innovative products, services, and integrated solutions in information and services, aerospace, electronics, and shipbuilding to its global customers.

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Player Avatar noahfarb (36.61) Submitted: 1/24/2011 10:19:22 PM : Outperform Start Price: $55.58 NOC Score: +101.66

Big defense contractor with leading market position. Spinning off low-margin shipbuilding business that has been depressing overall earnings. Through the spin-off, NOC will be able to unload a significant amount of debt on the shipbuilder, and allow it to focus on its higher margin businesses. An additional kicker can be found in the proposed spin-off. It looks like the shipbuilding business will have significant leverage. Additionally, the business’ margins have been substantially decreased by difficulties in the gulf coast. The company has decided to close one of the shipyards by 2013. The high leverage creates an opportunity in that any operating improvements will be amplified in earning growth. It appears management will have a considerable stake in the new entity and long-term incentives. The proposed CEO, Mike Petters, has an outstanding track record, as well as a reputation for frugality. Here is a good article on him: (http://articles.dailypress.com/2011-01-09/business/dp-nws-cp-mike-petters-northrop-20110109_1_shipbuilding-enterprise-matt-mulherin-shipyard). Long NOC now, but looking to pick up shares of the spin-off at a bargain post distribution.

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