Northrop Grumman Corporation (NYSE:NOC) — This aerospace and defense company is the third-largest producer of military arms and equipment in the world. About 90% of its revenue is from defense plus a large U.S. government IT service.
Standard & Poor’s estimates that sales are likely to rise 3% in 2017 and 5% in 2018. But in late-January S&P reiterated their three-star “hold” on the stock and lowered their 12-month target price to $245 from $280. This reduction places a price-to-earnings value of 20X their 2017 EPS estimate of $12.11 and is above the five- and 10-year average due to the election of President Donald Trump and the likely increase in U.S. government orders in 2017.
However, S&P cut their 2018 EPS due to lower guidance from management. Now, with the consensus expecting $12.18 but with just 2% revenue growth projected in 2017 EPS and guidance at $11.30-$11.60, holders of NOC stock should consider this stock as a “cash cow” candidate. In addition its dividend yield is only about 1.5%, which does not support holding the stock for income.
Technically, NOC stock is consolidating within a right triangle. However, lower-than-average buying and two CBR Sell signals from my indicator are not favorable for the bulls. The 20-day moving average (green line) is crossing down through the 50-day moving average (blue line) for trend line sell signal with a minimum target of $228 to $220. MACD is slightly negative. I’m not suggesting that this stock be shorted, but neither would I suggest owning it at the current price.
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