Price to FCFE (P/FCFE)
Free Cash Flow to Equity (FCFE)
Northrop Grumman Corp., FCFE calculation
US$ in millions
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).
The analysis of cash flow performance between 2018 and 2022 indicates a divergence between the trajectory of operational cash generation and the high volatility of free cash flow to equity.
- Operating Cash Flow Trends
- Net cash provided by operating activities grew from 3,827 million USD in 2018 to a peak of 4,305 million USD in 2020. This trend reversed over the subsequent two years, with a decline to 3,567 million USD in 2021 and a further decrease to 2,901 million USD in 2022. This represents a contraction in core operational cash generation of approximately 32% from the 2020 peak.
- Free Cash Flow to Equity (FCFE) Volatility
- FCFE exhibited significant instability during the period. After starting at 180 million USD in 2018, the metric experienced rapid growth to a peak of 4,019 million USD in 2020. A sharp reversal occurred in 2021, where FCFE fell into negative territory at -84 million USD, followed by a recovery to 1,466 million USD in 2022.
- Analysis of Cash Flow Divergence
- A notable disparity is observed in 2021, where positive operating cash flow did not result in positive FCFE. This suggests a significant increase in cash outflows dedicated to capital expenditures or the repayment of debt. In contrast, the 2022 recovery in FCFE occurred despite a continued decline in operating cash flow, indicating a potential reduction in capital spending or a change in the net borrowing position.
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Price to FCFE Ratio, Current
Northrop Grumman Corp., current P/FCFE calculation, comparison to benchmarks
| No. shares of common stock outstanding | 151,859,445 |
| Selected Financial Data (US$) | |
| Free cash flow to equity (FCFE) (in millions) | 1,466) |
| FCFE per share | 9.65 |
| Current share price (P) | 457.68 |
| Valuation Ratio | |
| P/FCFE | 47.41 |
| Benchmarks | |
| P/FCFE, Competitors1 | |
| Boeing Co. | — |
| Caterpillar Inc. | 20.71 |
| Eaton Corp. plc | 31.96 |
| GE Aerospace | 42.84 |
| Honeywell International Inc. | 8.86 |
| Lockheed Martin Corp. | 16.13 |
| RTX Corp. | 57.40 |
| P/FCFE, Sector | |
| Capital Goods | 41.93 |
| P/FCFE, Industry | |
| Industrials | 37.32 |
Based on: 10-K (reporting date: 2022-12-31).
1 Click competitor name to see calculations.
If the company P/FCFE is lower then the P/FCFE of benchmark then company is relatively undervalued.
Otherwise, if the company P/FCFE is higher then the P/FCFE of benchmark then company is relatively overvalued.
Price to FCFE Ratio, Historical
Northrop Grumman Corp., historical P/FCFE calculation, comparison to benchmarks
| Dec 31, 2022 | Dec 31, 2021 | Dec 31, 2020 | Dec 31, 2019 | Dec 31, 2018 | ||
|---|---|---|---|---|---|---|
| No. shares of common stock outstanding1 | 153,053,371 | 156,101,934 | 166,718,384 | 167,637,130 | 169,737,507 | |
| Selected Financial Data (US$) | ||||||
| Free cash flow to equity (FCFE) (in millions)2 | 1,466) | (84) | 4,019) | 2,304) | 180) | |
| FCFE per share3 | 9.58 | -0.54 | 24.11 | 13.74 | 1.06 | |
| Share price1, 4 | 443.47 | 373.99 | 293.03 | 384.87 | 275.55 | |
| Valuation Ratio | ||||||
| P/FCFE5 | 46.30 | — | 12.16 | 28.00 | 259.84 | |
| Benchmarks | ||||||
| P/FCFE, Competitors6 | ||||||
| Boeing Co. | 120.43 | — | — | — | — | |
| Caterpillar Inc. | 24.03 | 16.36 | — | — | — | |
| Eaton Corp. plc | 28.68 | 24.43 | — | — | — | |
| GE Aerospace | 44.45 | — | — | — | — | |
| Honeywell International Inc. | 27.59 | 46.23 | — | — | — | |
| Lockheed Martin Corp. | 11.63 | 14.65 | — | — | — | |
| RTX Corp. | 26.71 | 35.07 | — | — | — | |
| P/FCFE, Sector | ||||||
| Capital Goods | 25.94 | — | — | — | — | |
| P/FCFE, Industry | ||||||
| Industrials | 25.07 | — | — | — | — | |
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).
1 Data adjusted for splits and stock dividends.
3 2022 Calculation
FCFE per share = FCFE ÷ No. shares of common stock outstanding
= 1,466,000,000 ÷ 153,053,371 = 9.58
4 Closing price as at the filing date of Northrop Grumman Corp. Annual Report.
5 2022 Calculation
P/FCFE = Share price ÷ FCFE per share
= 443.47 ÷ 9.58 = 46.30
6 Click competitor name to see calculations.
The financial data reveals a period of significant volatility in Free Cash Flow to Equity (FCFE) per share, which has directly resulted in erratic fluctuations in the Price to FCFE (P/FCFE) ratio from 2018 to 2022. While the share price generally trended upward, reaching a peak of 443.47 US$ in 2022, the underlying cash flow metrics demonstrated less stability.
- Valuation Trend (2018–2020)
- A sharp contraction in the P/FCFE ratio is observed between 2018 and 2020, falling from 259.84 to 12.16. This decline was primarily driven by a substantial increase in FCFE per share, which grew from 1.06 US$ to 24.11 US$. The growth in cash flow per share during this window far exceeded the growth in share price, leading to a more compressed and traditionally attractive valuation multiple by the end of 2020.
- Cash Flow Volatility and 2021 Anomaly
- A critical pivot occurred in 2021, where FCFE per share turned negative, recording -0.54 US$. This negative cash flow rendered the P/FCFE ratio mathematically undefined for that period. The transition from a peak of 24.11 US$ in 2020 to a negative value in 2021 suggests a period of intense capital expenditure or significant equity-based cash outflows.
- Recovery and Valuation Re-rating (2022)
- By December 31, 2022, FCFE per share recovered to 9.58 US$. However, because the share price rose to 443.47 US$ during the same period, the P/FCFE ratio expanded to 46.30. This indicates that the market assigned a higher premium to the company's cash flows in 2022 compared to the levels observed in 2019 and 2020, although the valuation remained far below the extreme levels seen in 2018.
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