Valens Equity Weekly Insights - 2023 03 07
Northrop Grumman (NOC) has improved its profitability thanks to its massive contracts with the military for B-21s and other kit, effectively plateau-shifting the company's returns. Uniform Accounting highlights that the market is not pricing in that plateau shift to be sustainable, highlighting an opportunity for equity upside as its returns remain strong.Northrop Grumman has undergone a plateau shift in its returns thanks to its massive B-21 contract with the Department of Defense, and other US and allies spending needs. Its Uniform ROA was always around 17% until the contract started ramping up, at which point returns improved above 20%, reaching a peak of 22% in 2019. Northrop's returns should stay around those levels as it keeps delivering on its contract, and see spending and demand accelerate due to changing US and allies spending habits, pointing to equity upside.
NOC's management is aligned to drive margins and efficient top-line growth while maintaining operating and working capital efficiency.
Berry Global (BERY) is being removed from the Conviction Long List. Berry's sustainable plastic investments were supposed to help differentiate it, but because its customers are on cost cutting mode thanks to high inflation, its ESG investment is taking a backseat, and inflation is hurting its profitability too. And with slowing demand, the company is also struggling to deliver at the rate management has previously targeted. We are closing down 1%.
NOC
Northrop Grumman is a security company. The company's segments include: Aerospace Systems, which is engaged in the design, development, integration and production of manned aircraft, autonomous systems, spacecraft, high-energy laser systems, microelectronics and other systems and subsystems; Innovation Systems, which is engaged in the design, development, integration and production of flight, armament and space systems; Mission Systems, which is engaged in end-to-end mission solutions and multifunction systems; and Technology Services, which is engaged in delivering solutions and services in support of mission-critical networks and systems.
In 2009, just as the dust was settling from the last major equity and credit market crises, we launched a boutique research firm with the intention of breaking Wall Street’s biases and broken incentives:
- GAAP and IFRS have failed to provide rules for reliable financial statement reporting
- Stock analyst recommendations are not grounded in disciplined financial analysis
- Credit agencies have been set up to grossly fail in their responsibilities to investors and the public markets
- Utter lack of willingness of major research firms to employ the the most advanced forensic analysis available
We sought to provide investors and company analysts with a source of information that changed all that.
Many years later, our business model remains because little has changed on Wall Street.
- Corporate credit ratings remain years behind the fundamental underpinnings of company performance
- Stock analysts continue to make recommendations with deeply inherent biases
- Research firms have failed to break down the walls between credit, equity, and macroeconomic research
- The governing accounting bodies have created more leeway for mis-estimates and mis-classifications as financials have become unwieldy and overwhelming
The integrity of Valens Research is founded in our disciplined processes and analytics. No “star” analysts. No corporate advisory relationships. No-nonsense opinions and recommendations.
Unfortunately, this report is not available for the investor type or country you selected.
Browse all ResearchPool reportsReport is subscription only.
Thank you, your report is ready.
Thank you, your report is ready.