What Drives This Defense Contractor’s Business?
Northrop Grumman is a U.S. aerospace and defense contractor that designs and builds complex systems for government customers. The business spans aircraft, space-related programs, mission-focused systems, and defense technologies that combine hardware, software, and long-cycle program delivery. Its work is typically project-driven, with performance shaped by execution on large contracts and ongoing support over time. At roughly USD 98.7 billion in market value, it operates at a scale where consistency and delivery discipline matter as much as new wins.
Are Margins and Cash Flow Holding Steady?
FundamentalsFor 2025, reported in USD, revenue was USD 42.0 billion, up 2.2% year over year, with EBIT of USD 4.5 billion. Over the trailing period, the business ran at a 19.81% gross margin, a 10.75% operating margin, and a 9.97% net profit margin.
Cash conversion, using the provided proxy that adjusts EBIT for tax, depreciation and amortization, and capital spending, was USD 3.6 billion. Depreciation and amortization totaled USD 1.5 billion, and capital spending was USD 1.5 billion, keeping reinvestment close to non-cash charges. The balance sheet held USD 4.4 billion of cash against USD 30.3 billion of total debt.
Is the Stock Priced Above Its Value Range?
DCF / MultiplesAt USD 691.27 per share, the stock sits above a DCF central estimate of USD 633.30, within a range from USD 417.35 in a weaker outcome to USD 892.60 in a stronger one. The market’s pricing also aligns with a trailing P/E of 23.56 and an EV/EBITDA of 15.24, placing the valuation nearer the upper half of the DCF range.
Steady Margins Support the Case
TakeawayThe operating profile looks repeatable, built on steady margins. The price assumes that consistency stays intact. Execution slippage would show up quickly in cash generation. Debt makes operational surprises harder to absorb. The case works best if margins and cash remain steady.