UPDATE: JPMorgan Downgrades Northrop Grumman (NOC) to Neutral
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(Updated - August 25, 2016 9:26 AM EDT)
JPMorgan downgraded Northrop Grumman (NYSE: NOC) from Overweight to Neutral with a price target of $231.00 (from $225.00). Analyst Seth M. Seifman said he was taking profits and stepping to the sideline.
"We estimate 8% annual growth in FCF per share for 2016-20 (4 years). This stacks up well against other defense co’s but a FCF yield of 5.3% on our 2017 estimate is in line with the market and below many industrials. Some staples stocks trade below 5% and we can’t rule out further yield compression but it is not our base case. In addition, after executing a stellar repurchase program, NOC’s cash return yield no longer stands out and its dividend yield is low. Of course, strong program positioning means NOC should see organic growth accelerate to 5-6% after years of stagnant sales but this is a reason the stock trades at a high valuation already," said Seifman.
"In addition, our cash flow estimates are below consensus, probably due to our projections for capex that will fuel future growth. While we are stepping to the sidelines, execution has been excellent and management has proven quite adept at generating value," added the analyst.
Shares of Northrop Grumman closed at $214.00 yesterday.
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