Northrop Grumman Corporation has signed an agreement to sell its federal IT and mission support services business to Peraton, an affiliate of Veritas Capital, for $3.4 billion in cash.
Northrop’s (NOC) federal IT and mission support services business is estimated to have generated revenue of about $2.3 billion in 2020. The deal is expected to close in the first half of 2021. The company intends to use the sale proceeds for share repurchases to offset dilution from the transaction as well as for debt retirement.
Commenting on the divestiture, Northrop’s CEO Kathy Warden said, “This divesture allows us to drive value and reflects our strategy of focus on growing core businesses where technology and innovation are the key differentiators.” (See NOC stock analysis on TipRanks)
With NOC shares down 12.5% year-to-date, the average price target of $390.14 suggests upside potential of 29.6% from current levels. Northrop scores a Strong Buy analyst consensus based on 7 unanimous Buys.
In October, Cowen analyst Cai Rumohr reiterated a Buy rating on Northrop and a price target of $370 after a beat and raise quarter. Speaking about the company’s outlook, Rumohr stated, “Indicated potential ‘to grow backlog’ in 2021 is encouraging given GBSD [Ground Based Strategic Deterrent] will burn ~$1.1B. Potentials are an F-35 block buy, new business opportunities, and restricted awards (space, unmanned, hypersonics). Combined with likely B-21 acceleration as production ramps, revenue growth should increase in 2022.”
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