We look for 2018 sales of 45 billion down about 5

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We look for 2018 sales of $4.5 billion, down about 5% from the prior year.
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M ARKET D IGEST - 11 - Turning to our estimates, based on the pick-up in sales at Aerospace and expected margin improvement at Mission Systems, as well as the lower tax rate, we are raising our 2018 EPS forecast to $15.65 from $15.30, though this is likely to change after the Orbital ATK deal closes. We look for additional growth in 2019 and are raising our preliminary EPS estimate of $17.60 to $18.00. Our five-year EPS growth rate forecast is 10%. FINANCIAL STRENGTH & DIVIDEND Our financial strength ranking for Northrop Grumman is Medium, the midpoint on our five-point scale. The company receives average scores on our main financial strength criteria: debt levels, fixed-cost coverage, cash flow generation and profitability. The company had $11.2 billion in cash and equivalents at the end of 4Q17. Total debt was $14.4 billion at the end of the quarter and the total debt/total capital ratio was 67%, above the peer group average. The company has issued $8.25 billion in new debt to finance the Orbital ATK acquisition. Interest rates range from 2.08% for three-year notes to 4.03% for 30-year notes. Operating income covered interest expense by a factor of 9 in 4Q17. Northrop has a share buyback program. At the end of 1Q, the share count was down less than 1% year-over-year. Northrop pays a dividend. The company typically reviews the dividend in May. In December 2017, it raised the quarterly payout by 10% to $1.10, or $4.40 annually, for a yield of about 1.3%. We think the dividend is secure and likely to grow. Our dividend estimates are $4.40 for 2018 and $4.90 for 2019. MANAGEMENT & RISKS Wes Bush has been the CEO of Northrop Grumman since 2010. Kathy J. Warden is the new President and COO, as of January 2018. Ken Bedingfield, previously the national client leader of the U.S. aerospace and defense audit practice at KPMG, is the CFO. Investors in NOC shares face risks. Northrop Grumman is a key supplier to the U.S. military and thus vulnerable to cuts in defense spending. About 80% of the company’s current backlog comes from U.S. government contracts. However, NOC and other defense contractors have been expanding internationally to offset volatile U.S. defense spending trends, particularly on short-cycle programs. And in any event, with a Republican in the White House and the House and Senate both controlled by the GOP, the outlook for defense spending has brightened. Congress recently enacted the Consolidated Appropriation Act of 2018, which raised Department of Defense-based budget funding to $600 billion — up 14% from 2017 and the largest year-over-year increase in base budget funding in 15 years. Coupled with funding for overseas contingency operations, the total DoD appropriation rose to $665 billion. In 2015, Northrop was selected by the U.S. Air Force to build the Long-Range Strike Bomber. This program is expected to result in 80-100 aircraft, at a cost of $500-$550 million each, over the next 15-20 years. Northrop won the contract by beating out rival Boeing Co. (BA: BUY), which had teamed with Lockheed Martin Inc. (LMT: BUY). Boeing and Lockheed have protested the decision, and Northrop is awaiting the results of a review of the contract award process.
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