RBC Capital downgrades Northrop Grumman stock rating on growth outlook

RBC Capital has lowered its rating on Northrop Grumman stock, reducing its outlook from Outperform to Sector Perform. The firm has lowered its price target from $640 to $525, estimating only 6% top-line growth for the company between 2026 and 2028. RBC Capital notes Northrop Grumman's limited exposure to international sales, and predicts slimmer budget growth after fiscal year 2027, which will curb potential upside.

The company recently lost a major contract to Boeing. RBC Capital believes the upside revenue surprises will depend on the success of B-21, space portfolio, and potentially the solid rocket motor portfolio, which require significant investment. The firm argues that limited capital allocation options restrict potential catalysts.

Analysts now believe Northrop Grumman's multiple should be comparable to its peers. Despite the downgrade, the stock is trading near its 52-week low of $479. Despite the downgrade, InvestingPro data suggests the company is undervalued, with a P/E ratio of 15.3. Northrop Grumman has a strong dividend history, raising its dividend for 22 consecutive years.

The current price target of $525 is based on a 21x multiple applied to the company's 2028 free cash flow estimate of $3.6 billion. Northrop Grumman recently secured a significant $4.84 billion contract for the Common Infrared Countermeasure system, as well as a $34.4 million contract modification for UH-1Y and AH-1Z Helicopter Link-16 kits and spare parts.