RBC Capital analyst Ken Herbert downgraded Northrop Grumman (NYSE: NOC) from Outperform to Sector Perform with a price target of $525.00 (from $640.00).

The analyst comments: “We are downgrading our recommendation on Northrop Grumman (NOC) from Outperform to Sector Perform, and lowering our price target from $640 to $525. While we did not have any F/A-XX revenues in our model, we see ~6% top-line growth in 2026-2028, in-line with peers, as a best-case scenario. Moreover, we see NOC as less exposed to international sales, and believe slower budget growth post FY27 will limit the potential upside. Finally, limited capital allocation options restrict potential catalysts, in our view. Our $525 PT is based on a 21x multiple applied to our 2028 FCF estimate of $3.6B.

We do not believe investors placed a high probability on NOC's chances on the F/A-XX, which was recently awarded to Boeing (BA). However, in our view, the ability to see upside revenue surprises now rest on the B-21, the space portfolio, and potentially with the solid rocker motor (SRM) portfolio, all of which we believe would entail some level of incremental investment, which would impact sentiment. We do not expect NOC to outgrow its defense peers, and as a result we believe a multiple more in-line with its peers is appropriate.”

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Shares of Northrop Grumman closed at $482.00 yesterday.