Northrop Grumman's Q1 Results Highlight Favorable Margins, International Growth Prospects, RBC Says

Northrop Grumman's (NOC) strong Q1 results were driven by sales growth in aeronautics and space segments as well as better-than-expected operating margins, RBC said in a note emailed Friday.

The company's favorable margin outlook has garnered positive investor sentiment, with anticipated improvements due to potential upside in 2024 and 2025, and the $2 billion allocation for buybacks, according to the note.

Sales strength in the aerospace systems was driven by increased spending on B-21 and legacy programs like F-35 and a higher level of EACs, the firm noted.

RBC expects the Ukraine funding to boost defense and mission systems segments in the near term.

The company expects growth in international sales because increased defense spending abroad has raised demand for its integrated battle command system and weapons systems, RBC added.

"International sales will represent a smaller piece of the revenues relative to other defense primes, but it should be a source of higher margin growth for [Northrop] as opportunities mature and budgets continue to grow," the firm said.

RBC raised the company's price target to $475 from $450, and reiterated its sector perform rating.