Northrop Grumman

The Q2 operating margin was 10.1% vs 13.8%; adjusted for the $231m gain on the sale of the training business in Q2 2025, it has fallen about 1.4 percentage points (from about 11.5%). Defense Systems fell from 12.7% to 7.5% and Space from 10.6% to 8.6%. Guided segment margin about 11% ($4.85–5.0bn on about $44bn) – not a business getting stronger.

An agreement with the US Air Force in Q1 2026 to raise the B-21 production rate, with Northrop itself investing about $2.5bn over several years – in a programme whose fixed-price LRIP lots have already cost about $2.0bn in losses. At the same time buybacks have almost stopped ($68m in H1, nothing in Q2).

Space Systems has shrunk from $11.9bn (2023) to 10.8bn TTM, while growth comes from B-21 and Sentinel with low or negative margins. ROIC of 15.0% TTM is in line with 2024 (16.0%) but below 20.5% in 2022.

Forward P/E 17.3 vs 15.6–24.1 in FY21–25 (average about 19.5); trailing P/E 16.1 (FY24 16.4, FY25 19.5); EV/EBITDA 11.9 vs 8.1–21.0; P/FCF 19.7 – the lowest in five years (24.6–57.3). Cheap vs its own history and vs RTX, but forward EPS ($29.00) is below TTM EPS ($31.50), and EPS growth is only about 7–8% a year.

The US government accounted for 85% of sales in H1 2026 ($17.7bn of 20.8bn); international 14%.

B-21: about $2.0bn of accumulated losses on fixed-price LRIP lots and a further $157m negative EAC adjustment in Q1 2026 ($1.0bn of the loss provision is not yet used). In Q2 negative EACs on GEM 63XL ($91m) and SiAW ($68m); Defense Systems' operating profit fell 38%.

The Sentinel ICBM is 81% over budget on the latest estimate ($140.9bn vs 77.7bn) after a Nunn-McCurdy breach and restructuring. The contract is cost-plus, so the direct loss is limited, but the programme is politically exposed; first flight test only in 2027.

Five senior employees (including the general counsel, the controller and the heads of Mission and Defense Systems) sold about $6.4m in Feb–Mar 2026 at $700–745, near the top; since then only small sales. No open-market purchases in 2026 (the previously cited '15 purchases' were grants, not purchases).

The DOJ closed its criminal investigation of pension costs (CAS) on 20/5/2026, but the civil DOJ investigation and the DCMA case on the same matter continue; the outcome cannot be predicted.

The defence sector has been hit by rotation out of the sector; the stock is −34% from its $768 peak in March. The FY27 budget is only secured through a continuing resolution (CR) to 11/12, which limits new programme starts.

Record backlog of $105bn (+17% y/y, about 2.4 years of revenue) after $20bn of orders in Q2, including $7.6bn for Sentinel.

Full-year guidance raised: revenue $43.75–44.25bn (+$250m) and MTM-adjusted EPS $28.60–29.10 (+$1.20).

TTM buybacks of $0.86bn + dividends of $1.34bn = $2.2bn, below FCF of $3.65bn; share count −1.8% and 22 years of dividend increases. The pace of buybacks has slowed sharply in 2026, though.