NEW YORK (TheStreet) -- Northrop Grumman (NOC) shares are up 3.5% to $144.75 in early market trading on Friday after the defense contractor was upgraded to Goldman Sachs' "conviction buy" list by analysts at the firm who also raised the company's price target to $165 from $163.
The firm believes that the company's position as the Pentagon's largest subcontractor in the Pentagon's Joint Strike Fighter program makes it a premium buy.
Must Read: Warren Buffett's 25 Favorite Stocks
The price tag of the F-35 Joint Strike Fighter program has ballooned over the years with estimates in August putting the total cost of producing the aircraft at $399 billion with another trillion dollars expected to be needed to maintain the planes.
Under pressure from the U.S. government, main contractor Lockheed Martin (LMT) has engaged in attempting to lower the price of the 2,457 jet order with a goal of a price tag of $80 million per jet.
TheStreet Ratings team rates NORTHROP GRUMMAN CORP as a Buy with a ratings score of A+. TheStreet Ratings Team has this to say about their recommendation:
"We rate NORTHROP GRUMMAN CORP (NOC) a BUY. This is based on the convergence of positive investment measures, which should help this stock outperform the majority of stocks that we rate. The company's strengths can be seen in multiple areas, such as its solid stock price performance, growth in earnings per share, largely solid financial position with reasonable debt levels by most measures and reasonable valuation levels. We feel these strengths outweigh the fact that the company has had sub par growth in net income."
Highlights from the analysis by TheStreet Ratings Team goes as follows:
- Investors have apparently begun to recognize positive factors similar to those we have mentioned in this report, including earnings growth. This has helped drive up the company's shares by a sharp 26.32% over the past year, a rise that has exceeded that of the S&P 500 Index. Regarding the stock's future course, although almost any stock can fall in a broad market decline, NOC should continue to move higher despite the fact that it has already enjoyed a very nice gain in the past year.
- NORTHROP GRUMMAN CORP has improved earnings per share by 5.6% in the most recent quarter compared to the same quarter a year ago. The company has demonstrated a pattern of positive earnings per share growth over the past two years. We feel that this trend should continue. During the past fiscal year, NORTHROP GRUMMAN CORP increased its bottom line by earning $8.34 versus $7.80 in the prior year. This year, the market expects an improvement in earnings ($9.48 versus $8.34).
- The current debt-to-equity ratio, 0.60, is low and is below the industry average, implying that there has been successful management of debt levels. Along with the favorable debt-to-equity ratio, the company maintains an adequate quick ratio of 1.20, which illustrates the ability to avoid short-term cash problems.
- NOC, with its decline in revenue, slightly underperformed the industry average of 0.7%. Since the same quarter one year prior, revenues slightly dropped by 2.0%. The declining revenue has not hurt the company's bottom line, with increasing earnings per share.
- You can view the full analysis from the report here: NOC Ratings Report