Northrop Grumman May Be Set For Q2 Earnings Beat

Northrop Grumman Corporation (NYSE: NOC) seems poised for a solid 2Q beat and on track for profit growth in 2016, Cowen’s Cai von Rumohr said in a report. He maintained a Market Perform rating for the company, while raising the price target from $220 to $227.

“We expect revenues to turn up in Q2 as B-21 work ramps following denial of Boeing's protest in February, with EPS of at least $2.60, 8¢ over consensus,” analyst Cai von Rumohr wrote. He added that this could continue Northrop Grumman beating expectations by an average of 13 percent in each of the last seven quarters.

von Rumohr enumerated the following reasons for expecting a Q2 margin beat:

1. Q1 Aircraft margin down to 11.1 percent reflected "timing of risk reductions" on several aircraft programs, while full-year was reiterated at mid-to-high 11 percent
2. Aerospace & Mission Systems predecessor Q2 margins were higher than Q1 margins in four of the last six years
3. Q1's 10Q indicates the company had cost reimbursement claims with a couple of longstanding customers, totaling $75MM more than is factored into its 2016 accounting assumptions

Aerospace To Drive Accelerating Gains

“We see accelerating Aerospace revenue ramp in 2017-18 on (1) sharp lift in F-35 sales in H2:17, (2) production ramp on E2D & Triton, (3) B-21 development build, and (4) black space work,” the analyst added.