NORTHROP GRUMMAN CORP /DE/ (NOC): what the price requires

At today's price, NORTHROP GRUMMAN CORP /DE/ (NOC) is priced for +3.0% growth. boothcheck doesn't publish a fair value or a price target; it shows what the price assumes, so you can judge whether that bar is too high.

Generated: 2026-07-14 · Exported: 2026-07-16 · Source: https://boothcheck.com/report/NOC

Headline

FieldValue
TickerNOC
CompanyNORTHROP GRUMMAN CORP /DE/
Current price$541.21/sh
CompositionProduct 80% / Service 20%

What The Price Requires (Inversion)

The assumption today's price embeds, recovered by inverting the valuation.

FieldValue
Inversion basiswhole-company
Operating margin needed4.6%
Operating margin today10.5%
Margin compression implied-5.9pp
Implied growth3.0%
Multiple paid22x operating income

The operating-margin requirement is derived from the framework's value band at year 12, a separately labeled basis from the headline growth/duration solve.

Solve inputs: computed at a 7.1% cost of capital with 4% terminal growth over a 5-year stage; each 1pp of cost of capital moves the implied operating-profit growth ~8.3pp.

Reconcile: at the x-ray's 9.3% required return this reads ~19.3%/yr; the models below use their own rates.

How unusual the bet is: within-range

ReferenceValue
vs own history+0.02σ
cohort percentile (of 225 peers)51
implied end-window share0%

Valuation X-Ray

The price is justified by relative-multiple and growth-DCF; asset-based/earnings-power land below the price.

How the valuation models price the stock relative to the market price. Price/FV above 1.0 means the market pays more than that lens defends (expensive); at or below 1.0 the lens can defend the price.

FamilyMedian price/FVModelsReads
Asset1.56x5expensive
Earnings2.94x5expensive
Relative0.85x5justifies
Growth1.10x3expensive

Families that justify the price: Relative, Growth Families that call it expensive: Asset, Earnings

The models below discount at their own flat-beta convention rates (cost of equity 9.3%, WACC 8.3%); the inversion above states its own rate.

Per-Model Detail (n=18)

ModelFamilyFVPrice/FVApplicableMethodology
DCF Perpetual GrowthGrowth$490.941.10xyesFCF base $3.3B, growth 5% (input: historical growth), terminal g 4.0%, WACC 8.3%, 5yr projection
DCF Exit MultipleGrowth$571.870.95xyesExit EV/EBITDA: 12.3x / 14.3x / 16.3x (bear / base = today's held flat / bull), 5yr
Relative ValuationRelative$633.960.85xyesP/E 22x (static sector reference · 2026-04), scenarios: 18.5x / 22.0x / 25.5x (bear / base = reference held flat / bull), EV/EBITDA 14x
Simple DDMGrowth——no—
Two-Stage DDMGrowth——no—
Simple Excess ReturnAsset$347.161.56xyesBV/sh $120.11, ROE (TTM) 26.7%, ke 9.3%
Two-Stage Excess ReturnAsset$598.140.90xyes5yr excess ROE then converge to ke=9.3%
Discounted Future Market CapGrowth$461.631.17xyesRev $42.4B, growth 5% (input: historical growth; tapered), Terminal P/S: 1.5x / 1.8x / 2.1x (bear / base = today's held flat / bull, cap 8x)
Peter Lynch Fair ValueRelative$1096.060.49xyesEPS $31.90, growth 34% (input: historical EPS growth), PEG=0.49 (Undervalued)
Margin TrajectoryGrowth——no—
Earnings Power ValueEarnings$184.072.94xyesNormalized EBIT (5y avg op income, one-time charges added back) $3.77B × (1−15%) / WACC 8.3% → EPV (no growth)
Residual IncomeAsset$519.441.04xyesBV $120.11 + 5yr PV of (ROE (TTM) 26.7% − Kₑ 9.3%) × BV; BV grows 8.8%/yr
Graham NumberAsset$293.611.84xyes√(22.5 × EPS $31.90 × BVPS $120.11) — Graham's conservative floor
EV/EBITDA RelativeRelative$526.961.03xyesEBITDA $6.43B × sector EV/EBITDA 14.0x
FCF YieldEarnings$145.583.72xyesFCF $3305.0M / Kₑ 9.3% — zero-growth perpetuity
SBC-Adj FCF YieldEarnings$136.563.96xyesSBC-adj FCF $3.19B (FCF $3.31B − SBC $0.12B) capitalized at Kₑ
Ben Graham FormulaEarnings$1029.310.53xyesEPS $31.90 × (8.5 + 2×15.0%) × (4.4 / 5.3%)
ROIC-Justified P/BAsset$37.6814.36xyesBV $120.11 × (ROIC 2.6% / WACC 8.3%)
P/Sales SectorRelative$594.620.91xyesRevenue $42.37B × sector P/S 2.0x
PEG Fair ValueRelative$1196.250.45xyesEPS $31.90 × (PEG 1.5 × growth 25.0% (input: historical EPS growth)) → PE 37.5x
Earnings YieldEarnings$344.861.57xyesEPS $31.90 / required return 9.3% (Rf 4.3% + ERP 5.0%)
Funds From Operations MultipleRelative——no—
Clinical Phase NPVGrowth——no—
MertonAsset——no—
V5 Mechanical———no—

Solvency

FieldValue
Net debt$13.6b
Net debt / NOPAT (after-tax)3.79x
Net debt / operating income (pre-tax)3.22x
Share count CAGR (buyback)-2.3%
Burning cashno

Interest expense is not separately reported in the latest filings, so interest coverage cannot be computed.

Bullet Takeaways

Bull Case

A discounted-cash-flow model sees Northrop Grumman as a slow grower: high-single-digit revenue, mid-cycle margins, a terminal value pinned to a 4% fade. What that lens misses is the shape of the order book behind the cash flow. The company closed FY2025 with a record $95.7B backlog, and about 60% of it is scheduled to become revenue inside 24 months. A standard model treats next year's sales as an estimate; for a prime contractor most of next year's sales are already signed contracts. The 10-K shows the plumbing of that certainty, with $23.7B of unbilled receivables due from the U.S. government against progress and performance-based payments already received Total due from U.S. government 6,056 5,571. This is a business that gets paid as it builds, not after.

The programs underneath that backlog are the rarest kind in defense: sole-source, multi-decade franchises. The B-21 stealth bomber and the Sentinel ICBM are not contracts that get re-competed every few years; they are generational platforms where Northrop is the only supplier, and where the early development pain converts into long production and sustainment tails. The first quarter of 2026 showed the early turn, with segment operating income crossing $1B and margins improving to 10.8% as the prior B-21 loss provision rolled off. The company is now funding a 25% increase in B-21 production capacity itself, a $2.5B investment, because it sees the demand to fill it.

Capital allocation reinforces the franchise economics. Free cash flow rose 26% to $3.3B in 2025, the third straight year of 25%-plus growth, and the share count has fallen about 2.3% a year as buybacks retire stock. A defense prime that both reinvests at scale and shrinks its share base is compounding per-share value from two directions at once. Pay roughly 21 times earnings for that, against a sector trading near 22 times, and you are buying a sole-source backlog at the group's average multiple rather than a premium for it.

Bear Case

The valuation methods disagree about Northrop, and the disagreement is the bear case in miniature. The relative-multiple lens and the growth-discounted methods reach today's price; the methods built on asset value and on static earnings power land well below it. When the conservative families say a stock is expensive and only the multiple-and-growth families defend it, the honest read is that the price leans on the market keeping defense at its current multiple and on the production ramp delivering, not on a hard earnings-power floor. Strip out growth and value the in-place profit as a perpetuity, and the number sits far under $521 (June 27, 2026).

The specific fragility is fixed-price development, and Northrop has already shown what it costs. In the fourth quarter of 2023 the company recognized a projected loss of $1.56B across the five low-rate production options of the B-21 program we recognized a projected loss of $ 1.56 billion across the five LRIP options of the B-21 program. That is the structural hazard of these contracts: the company books the entire estimable future loss the moment it identifies one the entire amount of the estimable future loss, including an allocation of G&A costs, is charged against income in the period the loss is identified. The Sentinel and B-21 ramps now carry a $2.5B company-funded capacity build and an incremental $200M of 2026 capex, which is why several firms cut targets and moved to Hold on the near-term free-cash-flow drag. Management itself guides 2026 free cash flow to $3.1B to $3.5B, a range whose low end sits below the $3.3B just delivered.

The deeper dependency is the single customer. Northrop's sales run almost entirely to the U.S. government, and each segment derives a substantial portion of revenue from it. That concentration is a strength in a rising-budget environment and a cliff in a falling one: a continuing resolution, a debt-ceiling standoff, or a program restructuring lands directly on the order book with no commercial revenue to cushion it. Net debt of about $13.6B sits at roughly 2.8 times operating income, manageable but not trivial heading into the most capital-intensive phase of these programs. The bull case requires the budget to hold and the ramps to come in on cost. History on the second point is mixed.

Valuation

At about $521, the price is making a contained bet. Inverted, today's valuation embeds only modest forward growth on the operating economics Northrop has actually shown, a margin path well within reach for a prime contractor whose backlog is already 60% scheduled to convert inside two years. This is not a price reaching for an acceleration. It is a price paying for the existing franchise to keep running, which against a $95.7B backlog is a relatively grounded assumption.

The methods split cleanly. Comparing Northrop to its aerospace-and-defense cohort lands near the price (the sector trades around 22 times earnings, and Northrop sits near 21 times), and the growth-discounted cash-flow methods reach it too. The families built on asset value and on static earnings power land below: value the in-place profit with no growth and the number falls meaningfully short of today's price. That spread is the signal. The peer set is the right lens here, alongside HII, Lockheed Martin, General Dynamics, RTX, and Textron, names that share the same single-customer dynamics and the same backlog-driven visibility.

The balance sheet bounds the downside without being a fortress. Net debt sits near $13.6B, roughly 2.8 times operating income, and the company has covered its dividend and buybacks out of $3.3B of free cash flow while shrinking the share count about 2.3% a year. The pressure point is timing: the same programs that anchor the backlog demand the heaviest capital now, and management's 2026 free-cash-flow guide of $3.1B to $3.5B straddles the level just delivered. The bet the buyer underwrites is that the cash trough is shallow and the production tail is long.

Catalysts

The first quarter of 2026 was the cleanest evidence yet that the B-21 pain is rolling off. Revenue reached $9.9B, up 4% year over year, and diluted EPS jumped to $6.14 as net earnings rose 82%, helped by the absence of the prior year's B-21 loss provision and stronger segment margins in Aeronautics and Mission Systems. Segment operating income crossed $1B at a 10.8% margin, and management reaffirmed 2026 guidance of $43.5B to $44B in sales, underpinned by the record backlog.

The two programs that define the next several years are accelerating. B-21 production capacity is being lifted 25% through a $2.5B company-funded investment, with initial operating capability at Ellsworth Air Force Base tracking to 2027, and Northrop has agreed with the Air Force to accelerate Sentinel, with milestone B expected later this year and first flight targeted for 2027. These milestones convert development risk into production revenue if they hold to schedule and cost.

The Street is mixed precisely on that conversion. Consensus is a Buy across 35 analysts, but recent moves have trimmed targets: Jefferies cut to $620 from $660 while keeping a Buy, and Bernstein lowered to $660 from $765 at Market Perform, both citing the near-term free-cash-flow drag from an incremental $200M of 2026 capex. The number that adjudicates the debate is the 2026 free-cash-flow print against the $3.1B to $3.5B guide; landing in the upper half would tell the market the ramp capex is peaking rather than building.

Peer Cohorts (Per Segment, With Filing Citations)

Aeronautics Systems (reported)

Defense Systems (reported)

Mission Systems (reported)

Space Systems (reported)

Methodology Note

Fundamentals sourced from SEC EDGAR filings. Current price from Databento. The priced-in inversion and valuation x-ray are computed by the boothcheck engine; narrative composed by AI from the structured data.

Sources

NOC Q1 2026 earnings release · NOC Q1 2026 earnings call · Jefferies and Bernstein analyst notes, 2026

View the full interactive NOC report on boothcheck