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

In the published model solve dated 2026-Q2, anchored at $545.57, NORTHROP GRUMMAN CORP /DE/ (NOC) is priced for +0.5% growth. boothcheck publishes no house fair value, target price, or buy/sell rating; individual model outputs and user-controlled scenarios are analytical inputs, not Boothcheck targets. Narrative composed 2026-06-27.

Generated: 2026-08-30 · Source: https://boothcheck.com/report/NOC

Headline

What The Price Assumes (Inversion)

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

The operating-margin figure is value-band context at year 12: derived from the framework's value band, a separate calculation — not part of the priced-in solve.

Solve inputs: computed at a 7% cost of capital with 4% terminal growth over a 5-year stage.

How unusual the bet is: within-range (limited comparison data)

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.

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 8.4%); the inversion above states its own rate.

Per-Model Detail (n=15)

Economic-Unit Decomposition (Sum Of The Parts)

One or more material disclosed units has unresolved economics. Unknown/general is not evidence of homogeneity: segment SOTP is primary but incomplete, consolidated cash flow may remain only a secondary cross-check when every unit shares an enterprise basis, and one sector multiple or target margin is withheld.

No total common-equity value is stated. One or more material units lack a supported unit value. The displayed values are an indicative subtotal; consolidated debt and cash cannot be applied to a fraction of the company.

Solvency

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

Bullet Takeaways

• Northrop Grumman is a defense prime that turns a record $95.7B backlog into revenue: roughly 60% of that backlog converts within 24 months, and the customer is overwhelmingly one buyer, the U.S. government, where each segment derives a substantial share of sales.
• The defining risk is fixed-price development: the B-21 program already cost a $1.56B projected loss recognized in 2023, and a production ramp now carries another $2.5B of company-funded capacity investment that pressures near-term free cash flow.
• The next markers are the Sentinel ICBM milestones (milestone B and first flight tracking 2027) and the 2026 free-cash-flow guide of $3.1B to $3.5B, which tells you whether the capex drag is peaking.

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)

• LMT (LOCKHEED MARTIN CORPORATION)
• FY2025 10-K: …objective of procuring 2,456 aircraft for the U.S. Air Force, U.S. Marine Corps, and U.S. Navy. We also have commitments from seven international partner countries and 12 FMS customers, who collectively during the year indicated their intent to purchase 72 additional aircraft beyond their existing programs of record.…
• FY2025 10-K: …business segment includes our largest program, the F-35 Lightning II Joint Strike Fighter, an international multi-role, multi-variant, stealth fighter aircraft. Sales for the F-35 program represented approximately 27 % of our consolidated sales during 2025 and 26 % during both 2024 and 2023. Capital Expenditures and…
• GD (GENERAL DYNAMICS CORPORATION)
• FY2025 10-K: …while offering customers options to reduce or eliminate their carbon footprints. Gulfstream and Jet Aviation have been at the forefront of the industry by adopting and expanding the availability of sustainable aviation fuel (SAF), which achieves as much as an 80% reduction in carbon dioxide emissions per gallon over…
• FY2025 10-K: …services. We compete against other contractors as well as smaller companies that specialize in a particular technology or capability. Outside the United States, we compete with global defense contractors' exports and the offerings of local, private and state-owned defense manufacturers. Our Marine Systems segment has…
• RTX (RTX CORPORATION)
• FY2025 10-K: …aerospace industry. Our commercial aerospace businesses constitute a substantial portion of our financial results, and the performance of those businesses is directly tied to economic conditions in the commercial aerospace industry, which is cyclical in nature. Capital spending and demand for aircraft engines,…
• FY2025 10-K: …aerospace OEM and aftermarket maintenance contracts and on our defense contracts to design, develop, manufacture, or modify complex equipment. Our customers are in the public and private sectors, and our businesses reflect an extensive geographic diversification that has evolved with continued globalization.…
• TXT (Textron Inc.)
• FY2025 10-K: …training on Bell-owned aircraft and certified Full Flight Simulators and Flight Training Devices, as well as maintenance training on Bell's production representative maintenance training devices. Textron Systems Segment The businesses in our Textron Systems segment develop, manufacture and integrate a variety of…
• FY2025 10-K: …in the development and acceptance of new products or certification of new aircraft and other products occur from time to time and could adversely affect our results of operations. These delays or cost overruns could be caused by unanticipated technological hurdles, production changes to meet customer demands,…
• KTOS (Kratos Defense & Security Solutions, Inc.)
• FY2025 10-K: …address these threats for and with our customers and partners is recognized in the industry. We believe that the Company's military grade hardware, software and solution offerings, including jet unmanned aerial drones, rocket and hypersonic systems, C5ISR and air defense systems, jet engine and propulsion systems for…
• FY2025 10-K: …commercial customers. Improve operating margins. We believe that we have opportunities to increase our operating margins and improve profitability in the future as we transition from certain development programs, which typically generate inherently lower margins, to production programs, which typically generate…
• AVAV (AEROVIRONMENT, INC.)
• FY2025 10-K: …growth platforms in the future, creating additional market opportunities. Effective May 1, 2025, we operate our business in two reportable segments: (1) Autonomous Systems and (2) Space, Cyber and Directed Energy. 3 Table of Contents ​ Autonomous Systems ​ Uncrewed Aircraft Systems ("UAS"). Our family of uncrewed…
• FY2025 10-K: …include robotics and robotics systems autonomy; modular open systems architecture; sensor design, development, miniaturization and integration; embedded software and firmware; miniature, low power, secure wireless digital communications and networks; lightweight aerostructures; high-altitude systems design,…

Defense Systems (reported)

• LMT (LOCKHEED MARTIN CORPORATION)
• FY2025 10-K: …• Training, logistics and simulation (TLS) programs such as those providing sustainment services and programs that provide simulators and associated training to U.S. military and foreign government customers. Effective January 2026, the IWSS and C6ISR lines of business within RMS were restructured and renamed…
• FY2025 10-K: …at very long range and produced for the U.S. Air Force, U.S. Navy, and international customers. Hellfire and JAGM are air-to-ground missile used on rotary and fixed-wing aircraft, which is produced for the U.S. Army, Navy, Marine Corps and international customers. • The Javelin program, which is a one-person portable…
• RTX (RTX CORPORATION)
• FY2025 10-K: …Collins supports government and defense customer missions by providing systems solutions for connected battlespace, test and training range systems, crew escape systems, and simulation and training. Pratt & Whitney is among the world's leading suppliers of aircraft engines for commercial, military, business jet, and…
• FY2025 10-K: …of War (DoW) (formerly referred to as the U.S. Department of Defense), including the U.S. Navy, U.S. Army, Missile Defense Agency, U.S. Air Force, and U.S. Space Force, as well as programs with U.S. federal civil customers, and other international and classified customers. In 2025, Raytheon achieved key advancements…
• GD (GENERAL DYNAMICS CORPORATION)
• FY2025 10-K: …Powder propellant capacity; and continued advancement in solid rocket motor production. These initiatives will strengthen supply chain resiliency and support the full lifecycle of critical defense systems. Revenue for the Combat Systems segment was 17% of our consolidated revenue in 2025, 19% in 2024 and 20% in 2023.…
• FY2025 10-K: …potential contract value in our defense segments was $59.8 billion on December 31, 2025, up 14.4% compared with $52.2 billion at year-end 2024. 41 MARINE SYSTEMS The Marine Systems segment's backlog consists of very long-term submarine and surface ship construction programs, as well as numerous engineering and repair…
• LHX (L3HARRIS TECHNOLOGIES, INC.)
• FY2025 10-K: …Demand We operate in highly-competitive markets that are sensitive to technological advances. Some of our competitors in each of our markets are larger than we are and can maintain higher levels of expenditures for research and development ("R&D"). We concentrate on the opportunities that we believe are compatible…
• FY2025 10-K: …our classified networks, and to the IT networks and related systems that we operate, maintain and secure for certain of our customers. We have implemented various measures to manage the risk of a security breach or disruption. See "Item 1C. Cybersecurity" in this Report for further discussion of our risk management…
• KTOS (Kratos Defense & Security Solutions, Inc.)
• FY2025 10-K: …property and past performance qualifications and by offering a wider range of comprehensive low-cost technology leading and proven products and solutions compared to our competitors. In regard to areas of specialization, our product and solution offerings include the manufacturing of specialized defense electronics;…
• FY2025 10-K: …the U.S. Air Force (USAF), the U.S. Navy (USN), the U.S. Army, the U.S. Marine Corps (USMC), the U.S. Space Force, and the U.S. Space Command, and others. Additionally, Kratos customers also include the Defense Innovation Unit ("DIU") (formerly the Defense Innovation Unit Experimental ("DIUx")), Defense Advanced…

Mission Systems (reported)

• LHX (L3HARRIS TECHNOLOGIES, INC.)
• FY2025 10-K: …Group . On May 31, 2024, we completed the divestiture of our Antenna disposal group, from our SAS segment, for cash proceeds of $ 170 million and a $ 25 million note receivable. Visual Information Solutions ("VIS"). During fiscal 2023, we completed the divestiture of VIS from our SAS segment , for net cash proceeds…
• FY2025 10-K: …products. CS segment operating income increased in fiscal 2025 compared with fiscal 2024 primarily due to LHX NeXt driven cost savings realized during fiscal 2025 and the absence of a $24 million non-cash charge for impairment of other assets at Broadband Communications that occurred in fiscal 2024 related to the TDL…
• RTX (RTX CORPORATION)
• FY2025 10-K: …Collins supports government and defense customer missions by providing systems solutions for connected battlespace, test and training range systems, crew escape systems, and simulation and training. Pratt & Whitney is among the world's leading suppliers of aircraft engines for commercial, military, business jet, and…
• FY2025 10-K: …components, engine nacelle systems, including thrust reversers and mounting pylons, interior and exterior aircraft lighting, aircraft cargo systems, evacuation systems, landing systems (including landing gear, wheels, and braking systems), communication, navigation, surveillance systems, fire and ice detection and…
• LDOS (Leidos Holdings, Inc.)
• FY2025 10-K: …more than 120 countries, including people scanners, computed tomography carry-on baggage scanners, checked baggage scanners, and explosive trace detectors. We are also the primary supplier to CBP and other 4 Leidos Holdings, Inc. Annual Report Table of Contents PART I international customers of mobile, non-intrusive…
• FY2025 10-K: …across these reportable segments. NATIONAL SECURITY & DIGITAL Our National Security & Digital business provides leading-edge and technologically advanced services, solutions and products across substantially all U.S. federal government customers. Our advanced capabilities allow us to provide technology-enabled…
• CACI (CACI International Inc)
• FY2025 10-K: …omissions liability insurance may be inadequate to compensate us for all the damages that we might incur. Any such event could also cause serious damage to our reputation and prevent us from having access to or being eligible for further work on such sensitive systems for U.S. government customers. In addition, in…
• FY2025 10-K: …needs. Our proven Expertise and Technology and strong record of program delivery have enabled us to compete for and secure new customers and contracts, win repeat business, and build and maintain long-term customer relationships. We seek competitive business opportunities and have built our operations to support…
• SAIC (Science Applications International Corporation)
• FY2025 10-K: …management and operations, sustainment and security of the customers' entire IT infrastructure. Our long-standing customer relationships have enabled us to achieve an in-depth understanding of our customers' missions and provide differentiated service offerings to meet our customers' most complex requirements.…
• FY2025 10-K: …development and integration services, training, logistics and sustainment. These full life cycle offerings, combined with deep customer knowledge, allow us to more effectively support our customers' missions. Significant Scale and Diversified Contract Base. With approximately $7.5 billion in revenue in fiscal 2025,…
• LMT (LOCKHEED MARTIN CORPORATION)
• FY2025 10-K: …• Training, logistics and simulation (TLS) programs such as those providing sustainment services and programs that provide simulators and associated training to U.S. military and foreign government customers. Effective January 2026, the IWSS and C6ISR lines of business within RMS were restructured and renamed…
• FY2025 10-K: …and Mission Systems (RMS) and Space. We organize our business segments based on the nature of the products and services offered. Recent regional conflicts have demonstrated the integral role Lockheed Martin products play in protecting people, and we are rapidly transforming our business to meet increased demand. We…

Space Systems (reported)

• LMT (LOCKHEED MARTIN CORPORATION)
• FY2025 10-K: …• Training, logistics and simulation (TLS) programs such as those providing sustainment services and programs that provide simulators and associated training to U.S. military and foreign government customers. Effective January 2026, the IWSS and C6ISR lines of business within RMS were restructured and renamed…
• FY2025 10-K: …(TLS) programs due to lower volume. RMS' operating profit in 2025 decreased $598 million, or 31%, compared to 2024. The decrease was primarily due to the reach-forward losses of approximately $570 million on the CMHP program and $95 million on the TUHP program recognized in the second quarter of 2025; and about $60…
• RTX (RTX CORPORATION)
• FY2025 10-K: …components, engine nacelle systems, including thrust reversers and mounting pylons, interior and exterior aircraft lighting, aircraft cargo systems, evacuation systems, landing systems (including landing gear, wheels, and braking systems), communication, navigation, surveillance systems, fire and ice detection and…
• FY2025 10-K: …command and control and weapons including classified naval radars, the Next Generation Jammer (NGJ), shipboard missiles including the Tomahawk and Standard Missile 6 (SM-6), air-to-air missiles such as the AIM-9X SIDEWINDER missile, and integrated systems such as the SPY-6 radar. In addition, Raytheon provides…
• LHX (L3HARRIS TECHNOLOGIES, INC.)
• FY2025 10-K: . Under the agreement we will contribute certain of the assets and liabilities of the SPPS business, reported in our AR segment, and the SA&C business, reported in our IMS segment to a new entity in which we will retain a 40 % noncontrolling interest. The Space Technology disposal group, which excludes our RS-25…
• FY2025 10-K: …Group . On May 31, 2024, we completed the divestiture of our Antenna disposal group, from our SAS segment, for cash proceeds of $ 170 million and a $ 25 million note receivable. Visual Information Solutions ("VIS"). During fiscal 2023, we completed the divestiture of VIS from our SAS segment , for net cash proceeds…
• BA (THE BOEING COMPANY)
• FY2025 10-K: …If the satellite fails to meet contractual performance criteria, customers may not be obligated to continue making in-orbit payments and/or we may be required to provide refunds to the customer and incur significant charges. Risks Related to Technology, Security and Business Disruptions Managing a complex, global IT…
• FY2025 10-K: …ba:SpiritAeroSystemsHoldingsInc.Member 2025-12-08 2025-12-08 0000012927 ba:DebtRepaidOnSpiritsBehalfMember ba:SpiritAeroSystemsHoldingsInc.Member 2025-12-08 2025-12-08 0000012927 ba:SpiritAeroSystemsHoldingsInc.Member ba:PremiumOnAssumedExchangeableNotesMember 2025-12-08 2025-12-08 0000012927…
• GD (GENERAL DYNAMICS CORPORATION)
• FY2025 10-K: …elements of advanced resilient radio frequency (RF) to address battlefield realities such as jamming, spoofing, cyberattacks and lack of ground connectivity. Given our deep product innovation experience, we were selected to build the Next Generation Survival radio for the U.S. Joint Forces. For the Canadian Army, we…
• FY2025 10-K: …Worth, Texas; Appleton, Wisconsin; Sydney, Australia; Mexicali, Mexico; Singapore; Basel, Switzerland; Farnborough, United Kingdom. • Marine Systems - San Diego, California; Groton, New London and Waterford, Connecticut; Jacksonville, Florida; Bath and Brunswick, Maine; Middletown and North Kingstown, Rhode Island;…

Methodology Note

• Priced-in inversion: the valuation is inverted on the current price to recover the operating-income growth, duration, and steady-state margin the price embeds (ROE for financials, FFO growth for REITs).
• Valuation x-ray: the valuation models, grouped into four families (asset, earnings, relative, growth). Each model is expressed as a price/FV ratio (distance from price), not a point fair-value estimate. The spread across families is the disagreement.
• Economic-unit decomposition (SOTP): each disclosed business unit is assigned its native valuation basis before any multiple is applied. Operating units are valued on enterprise value; funded financial units are valued on their own common equity, because their borrowings fund earning assets rather than levering the parent. A company total is stated only once every material unit carries a supported value and the parent capital bridge reconciles.
• Solvency: net cash/debt, net-debt-to-NOPAT, interest coverage, and share-count CAGR from EDGAR financials (net debt / FFO and fixed-charge coverage for REITs; regulatory-capital framing for financials).
• Peer cohorts: per-segment comparables with deep-linkable SEC filing citations.

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.