Third Time’s a Charm for Northrop Grumman Corporation

NOC stock - Third Time’s a Charm for Northrop Grumman Corporation

Source: Steve Jurvetson via Flickr (modified)

Northrop Grumman Corporation (NYSE:NOC) announced July 12 that current CEO Wes Bush would step aside as chief executive at the end of the year to be replaced by COO Kathy Warden.

Bush will remain as chairman until July 2019 when he will leave the company after nine years as CEO and eight as chairman.

Under Bush’s leadership, NOC stock generated an annualized total return over eight-and-a-half years of 27.5%. Warden will be hard-pressed to deliver those kinds of numbers, but it’s important to point out that Bush’s tenure benefited greatly by taking over in January 2010, less than a year into the longest bull market in U.S. history.

It’s likely that NOC stock will face many more headwinds in the next few years, as interest rates rise and a potentially nasty trade war kicks in.

That said, Warden’s an excellent choice for the CEO role, having worked at the company for a decade including the past year as COO.

If you’re a supporter of gender diversity in the boardrooms and C-suites of America, this is another significant step in the right direction.

Defense Contractors Lead the Way

With Warden’s ascension to the top job at Northrop Grumman, there are now three S&P 500 defense contractors led by women: Warden, Marilyn Hewson at Lockheed Martin Corporation (NYSE:LMT) and Phebe Novakovic at General Dynamics Corporation (NYSE:GD).

When you consider that 25 women are running S&P 500 companies (~5%), the fact that more than 10% of them are CEOs of defense contractors is an example of how times are changing.

A decade ago it would have been a non-starter to promote a woman to the top job at a defense contractor — and now there are three.

Who says corporate America isn’t maturing?

The Right Stuff

For all you male chauvinists out there, Kathy Warden got the job because of her talent and experience.

Warden joined Northrop Grumman in 2008 as vice president and general manager of the company’s cybersecurity business; she ultimately became president of Northrop Grumman’s Mission Systems business — the division generated $2.9 billion in the first quarter of 2018, or 43% of the company’s overall revenue in the quarter — before her promotion to president and COO on Jan. 1, 2018.

Before joining the company in 2008, Warden spent nine years at General Dynamics, leaving the company as vice president of General Dynamics’ Intelligence Systems division. Before that, she spent six years at General Electric Company (NYSE:GE) as a senior manager.

The Bottom Line on NOC Stock

A couple of days before the news of Warden’s promotion to the job at Northrop Grumman, investors learned that it, along with Lockheed Martin and Raytheon Company (NYSE:RTN), were awarded contracts worth up to $4.1 billion by the Defense Department.

Tasked with developing a ballistic missile radar system in Hawaii to replace the existing Sea-Based X-Band Radar from Raytheon, the three companies will each come up with their own system, with the Pentagon ultimately picking one of them for deployment.

That’s good news for the shareholders of all three companies and a nice welcome present for Warden.

I’m not a fan of defense stocks but there’s little I can see about NOC stock that would make me leery of investing — except the troubling news that one of its engineers beat up an African-American protestor during the Charlottesville white supremacist rally. 

Wisely, the company has terminated the engineer’s employment.

I wouldn’t buy NOC stock, but that doesn’t mean you shouldn’t. Long-term you’ll do fine.

As of this writing Will Ashworth did not hold a position in any of the aforementioned securities.

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