1

Company Investment Report

I recommend investing in the aerospace and defense company, Northrop Grumman, because of its

positive financials, overall outlook for its industry, and its smart business strategy.

Financials

Increasing Stock Value

Source: New York Stock Exchange

Stock Price Increase from 2011 – 2016: 240%

Shareholders

$603 million paid in dividends (2016 Proxy Statement)

$3.8 billion worth of cash distributed to shareholders

65.27 57.666.76

113.38

146.46

221.97

0

50

100

150

200

250

2011 2012 2013 2014 2015 2016

Stoc

k Pr

ice

(USD

)

Year

Northrop Grumman Stock (USD)

2

30.5% total shareholder return

7% diluted earnings per share growth

Sales

While sales have declined 4% since 2013, the $23.5 billion that Northrop Grumman made in 2015 is still

a very healthy number.

Industry Outlook

The outlook for the aerospace and defense industry in 2016 remains positive with total revenues for the

sector expected to grow by 3% (2016 Global Aerospace). This is due to:

increased global security threats

regional tensions in the Middle East, Eastern Europe, North Korea, East and South China Sea

U.S. Department of Defense programs worth billions of dollars are expected to take off and

reach low or full scale production over the next few years (2016 Global Aerospace)

stable GDP growth around the world

growth in defense budgets of numerous countries

22.5

23

23.5

24

24.5

25

2013 2014 2015

Sale

s in

Bil

lio

ns

Sales

3

lower commodity prices (especially crude oil)

increase in passenger travel and demand (leading to more aircraft purchases)

Smart Company Strategy

Northrop Grumman’s strategy involves focusing on a select group of profitable sectors: aerospace, cyber

security, electronics, and IT. This is a good move because it prevents Northrop Grumman from wasting

money in ventures that will provide it with meager returns and instead invest in areas that will provide it

with immense profits.

The aerospace field (especially when it comes to unmanned vehicles like drones) for example, is growing

exponentially due to the Pentagon’s increased spending on unmanned vehicles. In 2016, the Pentagon

spent over $5.2 billion on acquiring unmanned vehicles. Up from $4.1 billion the year before (U.S.

Military). In total, the U.S. government plans to spend over $23 billion on unmanned vehicles from 2014

– 2020. Going further, the projected sales for unmanned vehicles in America alone is expected to reach

125,000 units in 2020, up from 70,000 units in 2015 (Strategic Acquisition). With foreign countries like

China and India buying unmanned vehicles the number of unmanned vehicles sold will be vast.

North Grumman’s focus on cybersecurity is a smart move as well for the cybersecurity field is expected

to be one of the “largest and most financially profitably opportunities in the 21st century” (Strategic

Acquisition). In 2015, the field was worth over $75 billion. By 2020, it’s expected to be worth $170

billion.

4

Northrop Grumman’s strategy also involves acquiring and merging with tech companies like Air

Industries Group. This allows Northrop Grumman to get rid of competitors, gain new technology, and

improve its supply chain management. Air Industries Group for example makes E-2 Hornet parts.

Environmentally Conscious

Northrop Grumman is focused on being an environmentally conscious company that’s committed to

reducing its carbon footprint. Some of its environmental iniatives, accomplishments, and goals comprise

of:

scoring a perfect 100 on the Climate Disclosure Index

installing solar power systems in its offices located in St. Augustine and Melbourne, Florida

which generate a total of 0.56 MW of clean energy (Environmental Sustainability)

reducing greenhouse emissions from its offices and assembly plants by 30% from its 2010 levels

funding the ECO Classroom Program which equips teachers with the tools to develop students

to be environmental innovators and stewards

Corporate Culture

Northrop Grumman’s corporate culture includes:

one that welcomes people of all backgrounds (including race, religion, and sexual orientation)

committed to being environmentally conscious

making the world a safer place

work/life balance

5

Risk Factors

The main risk factor for Northrop Grumman is that it relies heavily on the U.S. government for most of

its sales (2015 Annual Report). Over the past few years the U.S. government has been making fewer and

fewer defenses purchases. Which in turn has hit Northrop Grumman’s sales.

This problem is confounded by the fact that the U.S. government has the ability to terminate contracts

without prior notice; further impacting sales. Defense deals can sometimes be partially funded by the

U.S. government, with the remaining funds awaiting approval from Congress. If the remaining funds

aren’t approved, then defense and aerospace contracts from the U.S. government will be reduced,

which inevitably will lead to a decline in sales.

Conclusion

In conclusion I recommend investing in Northrop Grumman due to its positive financials, the overall

industry it’s operating in, and its smart business strategy.

81%

82%

83%

84%

85%

86%

87%

2013 2014 2015

Perc

ent

of S

ales

Year

Percentage of Sales from U.S. Government

6

Bibliography

"2015 Annual Report." Northrop Grumman, 2015. Web. 13 July 2016.

2016 Global Aerospace and Defense Sector Outlook. N.p.: Deloitte, 2016. Print.

2016 Proxy Statement. N.p.: Northrop Grumman, 2016. Print.

"Environmental Sustainability (greeNG)." Northrop Grumman. N.p., n.d. Web. 13 July 2016.

"Strategic Acquisition And Growth Strategies For Northrop Grumman." NASDAQ.com. N.p.,

2016. Web. 15 July 2016.

"US Military to Spend $23.9 Billion on Drones and Unmanned Systems." RobotEnomics. N.p.,

2014. Web. 17 July 2016.