RBC cuts Northrop Grumman rating on slower growth, cautious defense outlook

Investing.com -- RBC Capital Markets downgraded Northrop Grumman to Sector Perform from Outperform and cut its price target to $525 from $640 in a note to clients on Friday.

Analyst Ken Herbert said about 6% annual revenue growth from 2026 to 2028, in line with peers, is a best-case scenario.

“We see NOC as less exposed to international sales, and believe slower budget growth post FY27 will limit the potential upside,” the analyst wrote.

Boeing recently won the F/A-XX fighter contract, though Herbert said investors had not assigned Northrop high odds of winning it. He believes revenue upside now rests on the B-21 bomber, the space portfolio and potentially solid rocket motors, each of which would require additional investment.

RBC is more cautious on total defense spending beyond fiscal 2027. Its model assumes low-single-digit real growth from fiscal 2028 to 2031, with a growing risk of crowding out.

Herbert added that Northrop's core programs should remain well supported, but he sees incremental risk to the F-35, which accounts for about 10% of sales.

“Moreover, limitations on capital allocation (NOC retired 50% of its share out between 2007-2017) will likely also be a headwind for sentiment, and earnings growth,” said the analyst.

RBC expects the B-21 program of record to rise to at least 150 aircraft as its mission expands, though the program will likely remain a near-term drag on margins.

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