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The analysts said they are downgrading the stock to reflect a lower forecast for FCF during the ramp period for B-21/GBSD over the next several years.
“Our lower forecast is driven by our view that NOC’s margins are likely to deteriorate more than expected, diluting a significant portion of growth that is seen on the outlook for B-21/GBSD,” the analysts wrote. “As we now see NOC outgrowing peers by less, we believe a smaller valuation premium is warranted.”
They explained that they still see a superior revenue growth profile for NOC compared to its peers. However, they also now see margins falling to ~10% as B-21/GBSD production ramps up.
“We estimate that NOC trades at 25% premium to its peers (on 2025) on average, which we think will compress,” said the analysts.
NOC shares are down more than 1% at the time of writing.
