Stock Analysis on Net

Northrop Grumman Corp. (NYSE:NOC)

This company has been moved to the archive! The financial data has not been updated since April 27, 2023.

Dividend Discount Model (DDM) 

Microsoft Excel

In discounted cash flow (DCF) valuation techniques the value of the stock is estimated based upon present value of some measure of cash flow. Dividends are the cleanest and most straightforward measure of cash flow because these are clearly cash flows that go directly to the investor.


Intrinsic Stock Value (Valuation Summary)

Northrop Grumman Corp., dividends per share (DPS) forecast

US$

Microsoft Excel
Year Value DPSt or Terminal value (TVt) Calculation Present value at 9.78%
0 DPS01 6.76
1 DPS1 8.67 = 6.76 × (1 + 28.28%) 7.90
2 DPS2 10.69 = 8.67 × (1 + 23.26%) 8.87
3 DPS3 12.64 = 10.69 × (1 + 18.23%) 9.55
4 DPS4 14.31 = 12.64 × (1 + 13.21%) 9.85
5 DPS5 15.48 = 14.31 × (1 + 8.19%) 9.71
5 Terminal value (TV5) 1,047.90 = 15.48 × (1 + 8.19%) ÷ (9.78%8.19%) 657.09
Intrinsic value of Northrop Grumman Corp. common stock (per share) $702.96
Current share price $457.68

Based on: 10-K (reporting date: 2022-12-31).

1 DPS0 = Sum of the last year dividends per share of Northrop Grumman Corp. common stock. See details »

Disclaimer!
Valuation is based on standard assumptions. There may exist specific factors relevant to stock value and omitted here. In such a case, the real stock value may differ significantly form the estimated. If you want to use the estimated intrinsic stock value in investment decision making process, do so at your own risk.


Required Rate of Return (r)

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Assumptions
Rate of return on LT Treasury Composite1 RF 4.53%
Expected rate of return on market portfolio2 E(RM) 13.63%
Systematic risk of Northrop Grumman Corp. common stock βNOC 0.58
 
Required rate of return on Northrop Grumman Corp. common stock3 rNOC 9.78%

1 Unweighted average of bid yields on all outstanding fixed-coupon U.S. Treasury bonds neither due or callable in less than 10 years (risk-free rate of return proxy).

2 See details »

3 rNOC = RF + βNOC [E(RM) – RF]
= 4.53% + 0.58 [13.63%4.53%]
= 9.78%


Dividend Growth Rate (g)

Dividend growth rate (g) implied by PRAT model

Northrop Grumman Corp., PRAT model

Microsoft Excel
Average Dec 31, 2022 Dec 31, 2021 Dec 31, 2020 Dec 31, 2019 Dec 31, 2018
Selected Financial Data (US$ in millions)
Dividends declared 1,052 989 951 880 822
Net earnings 4,896 7,005 3,189 2,248 3,229
Sales 36,602 35,667 36,799 33,841 30,095
Total assets 43,755 42,579 44,469 41,089 37,653
Shareholders’ equity 15,312 12,926 10,579 8,819 8,187
Financial Ratios
Retention rate1 0.79 0.86 0.70 0.61 0.75
Profit margin2 13.38% 19.64% 8.67% 6.64% 10.73%
Asset turnover3 0.84 0.84 0.83 0.82 0.80
Financial leverage4 2.86 3.29 4.20 4.66 4.60
Averages
Retention rate 0.74
Profit margin 11.81%
Asset turnover 0.82
Financial leverage 3.92
 
Dividend growth rate (g)5 28.28%

Based on: 10-K (reporting date: 2022-12-31), 10-K (reporting date: 2021-12-31), 10-K (reporting date: 2020-12-31), 10-K (reporting date: 2019-12-31), 10-K (reporting date: 2018-12-31).

2022 Calculations

1 Retention rate = (Net earnings – Dividends declared) ÷ Net earnings
= (4,8961,052) ÷ 4,896
= 0.79

2 Profit margin = 100 × Net earnings ÷ Sales
= 100 × 4,896 ÷ 36,602
= 13.38%

3 Asset turnover = Sales ÷ Total assets
= 36,602 ÷ 43,755
= 0.84

4 Financial leverage = Total assets ÷ Shareholders’ equity
= 43,755 ÷ 15,312
= 2.86

5 g = Retention rate × Profit margin × Asset turnover × Financial leverage
= 0.74 × 11.81% × 0.82 × 3.92
= 28.28%


Dividend growth rate (g) implied by Gordon growth model

g = 100 × (P0 × rD0) ÷ (P0 + D0)
= 100 × ($457.68 × 9.78%$6.76) ÷ ($457.68 + $6.76)
= 8.19%

where:
P0 = current price of share of Northrop Grumman Corp. common stock
D0 = the last year dividends per share of Northrop Grumman Corp. common stock
r = required rate of return on Northrop Grumman Corp. common stock


Dividend growth rate (g) forecast

Northrop Grumman Corp., H-model

Microsoft Excel
Year Value gt
1 g1 28.28%
2 g2 23.26%
3 g3 18.23%
4 g4 13.21%
5 and thereafter g5 8.19%

where:
g1 is implied by PRAT model
g5 is implied by Gordon growth model
g2, g3 and g4 are calculated using linear interpoltion between g1 and g5

Calculations

g2 = g1 + (g5g1) × (2 – 1) ÷ (5 – 1)
= 28.28% + (8.19%28.28%) × (2 – 1) ÷ (5 – 1)
= 23.26%

g3 = g1 + (g5g1) × (3 – 1) ÷ (5 – 1)
= 28.28% + (8.19%28.28%) × (3 – 1) ÷ (5 – 1)
= 18.23%

g4 = g1 + (g5g1) × (4 – 1) ÷ (5 – 1)
= 28.28% + (8.19%28.28%) × (4 – 1) ÷ (5 – 1)
= 13.21%