Northrop Grumman (NOC) is back in focus after the company, working with Raytheon, secured a phase two DARPA Burn n’ Go contract to advance a thrust adjustable solid rocket motor.

Despite the DARPA contract and other recent milestones such as the dividend increase and upcoming investor conference appearance, the stock’s short term share price return is under pressure. The 90 day share price return is down 22.44%, while the 1 year total shareholder return is 17.86%. This points to longer term momentum that contrasts with recent weakness.

If you are looking beyond defense contractors and want to see what else is setting up for future growth, this is a good moment to scan 35 power grid technology and infrastructure stocks

With Northrop Grumman shares under short term pressure yet showing stronger multi year returns and trading at a discount to analyst price targets, investors may ask whether this is a reset that creates a potential buying opportunity or if future growth expectations are already reflected in the current price.

Most Popular Narrative: 22% Undervalued

At a last close of $551.34 versus a narrative fair value of about $706.82, Northrop Grumman is framed as undervalued, with that gap built on specific revenue, margin and earnings assumptions all discounted at 8.36%.

The ramp-up of advanced autonomous and integrated systems such as Beacon and IBCS, combined with ongoing investments in solid rocket motor capacity (targeting a near-doubling by 2029), positions the company to capitalize on high-growth, higher-margin market segments, thereby enhancing future operating margins and underlying cash flow.

Want to see what sits underneath that optimism on margins and cash flow? The narrative leans heavily on measured revenue growth, flat earnings and a richer future earnings multiple. Curious which assumptions really carry the valuation load.

Result: Fair Value of $706.82 (UNDERVALUED)

However, that upside view can quickly crack if major U.S. defense programs face budget cuts or delays, or if cost overruns pressure margins on large fixed price contracts.

Another Angle On Value

The SWS DCF model actually points in a different direction to the narrative fair value. At a last close of $551.34, Northrop Grumman is trading slightly above an estimated future cash flow value of $544.11, which frames the stock as a touch overvalued on this cash flow view. Which perspective appears more convincing?

Simply Wall St performs a discounted cash flow (DCF) on every stock in the world every day (check out Northrop Grumman for example). We show the entire calculation in full. You can track the result in your watchlist or portfolio and be alerted when this changes, or use our stock screener to discover 46 high quality undervalued stocks. If you save a screener we even alert you when new companies match - so you never miss a potential opportunity.

Next Steps

After reviewing both the potential advantages and the concerns, does the balance of risks and rewards feel compelling enough for you? While the data is fresh in your mind, take action and review both sides in detail with the 4 key rewards and 1 important warning sign

Looking for more investment ideas?

If Northrop Grumman is on your radar, this is a great time to broaden your watchlist with other stocks that match the kind of portfolio you want.

• Target potential mispricings by scanning for quality companies trading below their implied worth through the 46 high quality undervalued stocks.
• Build a steadier income stream by hunting for higher yielding candidates using the 9 dividend fortresses.
• Prioritize resilience and capital preservation by focusing on companies flagged in the 64 resilient stocks with low risk scores.

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.