Is Northrop Grumman Stock a Defensive Stock to Buy Now?
Summary
Parkev argues that Northrop Grumman is currently a buying opportunity, although Parkev expresses a low conviction level regarding this specific ranking. Parkev notes that the company has reached a record backlog of over $105 billion and is actively increasing capacity to deliver on orders more quickly as geopolitical tensions rise globally. Parkev points out that while operating profit margins are currently around 10.72%, they have recently begun to trend higher after a period of decline.
Parkev emphasizes that Northrop Grumman's business is uniquely attractive because it is less correlated with the broader US macroeconomy, providing a hedge during recessions. Parkev performed a updated discounted cash flow valuation and calculated a fair value of $672 per share, which is significantly higher than the current market price of $542. Parkev views the stock as a way to diversify a portfolio since its performance is tied more to government relationships and defense needs than to interest rates or unemployment levels.
Mentioned Stocks
Reasoning: Parkev mentions Raytheon as a peer for comparison but explicitly states a preference for Northrop Grumman over Raytheon. Parkev suggests that Northrop Grumman is a more attractive investment at current prices.
Reasoning: Parkev calculates a fair value of $672 per share, which is well above the market price of $542. Parkev highlights the record $105 billion backlog and the stock's low correlation with the macroeconomy as key reasons for the recommendation, despite having a relatively low conviction level.
Reasoning: Parkev references Boeing to illustrate typical profit margins in the defense industry, noting they are often in the high single or low double digits. No buy or sell recommendation is made for the stock.