DCF Studio

    NOC · NYQ · Industrials

    Northrop Grumman Corporation

    Also onShortfallConsensus DriftCrosscheck

    Implied value per share

    USD 479.81

    Market price

    USD 527.39

    Implied upside

    -9.0%

    5-year forecast · Perpetuity growth terminal value · Mid-year discounting · Base case

    AdjustedBeta of -0.110 is not usable in a cost of equity. Clamped to 0.30.

    Value Per Share

    Perpetuity growth
    USD 479.81-9.0%
    Exit multiple
    USD 555.39+5.3%
    Market price
    USD 527.39

    Same forecast, different terminal treatment. Percentages vs price.

    Forecast Cashflows

    Reporting currency (USD). Outflows negative.

    0bn2bn4bnFY26FY27FY28FY29FY30
    Nominal FCFFDiscounted to todayUSD
    LineFY26FY27FY28FY29FY30CAGR
    RevenueUSD 43.9bnUSD 46.0bnUSD 48.1bnUSD 50.3bnUSD 52.7bn+4.7%
    EBITUSD 4.1bnUSD 4.3bnUSD 4.5bnUSD 4.7bnUSD 4.9bn+4.7%
    NOPATUSD 3.4bnUSD 3.6bnUSD 3.7bnUSD 3.9bnUSD 4.1bn+4.7%
    Add depreciation & amortisationUSD 1.5bnUSD 1.6bnUSD 1.7bnUSD 1.8bnUSD 1.8bn+4.7%
    Less capital expenditureUSD -1.8bnUSD -1.9bnUSD -1.9bnUSD -2.0bnUSD -2.1bn+4.7%
    Less increase in working capitalUSD -104.6mUSD -109.5mUSD -114.6mUSD -119.9mUSD -125.5m+4.7%
    Free cashflow to firmUSD 3.1bnUSD 3.2bnUSD 3.3bnUSD 3.5bnUSD 3.7bn+4.7%
    Discount factor0.97040.91380.86060.81040.7632-
    Present valueUSD 3.0bnUSD 2.9bnUSD 2.9bnUSD 2.8bnUSD 2.8bn-1.4%
    Present Value Of The ForecastUSD 14.4bn

    Discount Rate

    Source shown per component. All overridable above.

    Risk-free rate5.00%US 10-year Treasury (^TNX)
    Equity risk premium5.50%Market assumption
    Beta0.300Clamped from a reported -0.110
    Cost of equity6.65%Risk-free + beta x equity risk premium
    Cost of debt5.00%Floored at the risk-free rate (implied cost of debt was lower)
    Market capitalisationUSD 74.9bn81.5% of capital
    Total debtUSD 17.0bn18.5% of capital, book value as a proxy
    Tax rate16.4%Effective, capped at statutory
    WACC6.19%E/V x Re + D/V x Rd x (1 - t)

    Terminal Value

    Perpetuity growth is intrinsic. The exit multiple defaults to the company's current EV/EBITDA, so it answers a different question - what the shares are worth if today's rating holds and EBITDA grows as forecast.

    Perpetuity growth at 2.50%

    Value per shareUSD 479.81

    82% of EV

    Forecast FCFF, final year
    USD 3.7bn
    Capex at depreciation, working capital in reinvestment
    USD 4.1bn
    Less reinvestment at g/ROIC (22.4% of NOPAT)
    USD -915.2m
    Capitalised
    USD 3.2bn
    ROIC (reported)
    11.2%
    Terminal value, undiscounted
    USD 88.1bn
    Terminal value, discounted
    USD 67.2bn
    Enterprise value
    USD 81.6bn
    Less net debt
    USD 12.6bn
    Equity value
    USD 69.0bn

    Exit at 15.2x EBITDA

    Value per shareUSD 555.39

    84% of EV

    Terminal value, undiscounted
    USD 102.3bn
    Terminal value, discounted
    USD 78.1bn
    Enterprise value
    USD 92.5bn
    Less net debt
    USD 12.6bn
    Equity value
    USD 79.9bn

    Spread between methods: 15%.

    Sensitivity

    Value per share (USD) by discount rate and long-run growth.

    Long-run growth
    Discount rate1.50%2.00%2.50%3.00%3.50%
    4.19%788.74920.271128.971512.112448.67
    5.19%553.52608.63683.85792.95965.99
    6.19%418.59445.67479.81524.36585.10
    7.19%331.08345.44362.67383.78410.36
    8.19%269.73277.56286.61297.23309.93

    Outlined: this model. Green text: above today's price of 527.39. Shading: distance from this model's own value.

    Priced In

    What each input would have to be to justify the current price, one at a time.

    InputModelImpliedGap
    Revenue growth, every year4.7%6.5%+1.9pp
    EBIT margin9.3%10.0%+0.8pp
    Discount rate6.2%5.9%-0.3pp
    Download as Excel

    Live formulas, not pasted numbers - edit a driver and the workbook reprices.

    Yahoo Finance and RBA data. General information, not advice. Methodology.