Today we're going to take a closer look at large-cap Industrials company Northrop Grumman, whose shares are currently trading at $489.31. We've been asking ourselves whether the company is under or over valued at today's prices... let's perform a brief value analysis to find out!
A Lower P/E Ratio Than Its Sector Average but Trades Above Its Graham Number:
Northrop Grumman Corporation operates as an aerospace and defense company worldwide. The company belongs to the Industrials sector, which has an average price to earnings (P/E) ratio of 20.49 and an average price to book (P/B) ratio of 3.78. In contrast, Northrop Grumman has a trailing 12 month P/E ratio of 16.2 and a P/B ratio of 4.78.
Northrop Grumman's PEG ratio is 11.35, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
A Deteriorating Pattern of Cash Flows With a Flat Trend:
| 2018-01-29 | 2019-01-31 | 2020-01-30 | 2021-01-28 | 2022-01-27 | 2023-01-26 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $26,004 | $30,095 | $33,841 | $36,799 | $35,667 | $36,602 |
| Gross Margins | 23.0% | 23.0% | 21.0% | 20.0% | 20.0% | 20.0% |
| Operating Margins | 12% | 13% | 12% | 11% | 10% | 10% |
| Net Margins | 11.0% | 11.0% | 7.0% | 9.0% | 20.0% | 13.0% |
| Net Income (MM) | $2,869 | $3,229 | $2,248 | $3,189 | $7,005 | $4,896 |
| Net Interest Expense (MM) | -$360 | -$562 | -$528 | -$593 | -$556 | -$506 |
| Depreciation & Amort. (MM) | -$475 | -$800 | -$1,265 | -$1,267 | -$1,239 | -$1,342 |
| Earnings Per Share | $16.34 | $18.49 | $13.22 | $19.03 | $43.67 | $31.53 |
| EPS Growth | n/a | 13.16% | -28.5% | 43.95% | 129.48% | -27.8% |
| Diluted Shares (MM) | 176 | 175 | 170 | 168 | 160 | 155 |
| Free Cash Flow (MM) | $3,541 | $5,076 | $5,561 | $5,520 | $4,898 | $4,181 |
| Capital Expenditures (MM) | -$928 | -$1,249 | -$1,264 | -$1,215 | -$1,331 | -$1,280 |
| Net Current Assets (MM) | -$11,409 | -$19,786 | -$21,585 | -$18,546 | -$17,227 | -$15,955 |
| Long Term Debt (MM) | $14,399 | $13,883 | $12,770 | $14,261 | $12,777 | $11,805 |
Northrop Grumman has weak revenue growth and a flat capital expenditure trend, just enough current assets to cover current liabilities, and an average amount of debt. We also note that the company benefits from average operating margins with a stable trend and a strong EPS growth trend. However, the firm suffers from slimmer gross margins than its peers and a deteriorating pattern of cash flows.
