Last update on 2024-06-07

Northrop Grumman (NOC) - Piotroski F-Score Analysis for Year 2023 (Final Score: 6/9)

In-depth analysis of Northrop Grumman (NOC) using the Piotroski F-Score for 2023. Learn about profitability, liquidity, leverage, and operational efficiency.

Short Analysis - Piotroski Score: 6

We're running Northrop Grumman (NOC) against the Piotroski 9-criteria scoring system to assess profitability, liquidity, and operating efficiency:

Northrop Grumman (NOC) received a Piotroski F-Score of 6, indicating a moderate financial health status. The analysis considered nine criteria involving profitability, liquidity, and operating efficiency. The company scored well in net income, cash flow from operations, operating cash flow vs net income, current ratio, reduction in shares outstanding, and asset turnover ratio. However, it had lower scores in return on assets, gross margin, and leverage trends.

Insights for Value Investors Seeking Stable Income

Based on Northrop Grumman's Piotroski F-Score of 6, the company shows moderate financial strength. The positive aspects, such as strong cash flow, improving current ratio, and share buybacks, make it a potentially good investment. However, the declining return on assets and gross margin, along with increasing leverage, suggest some areas of concern. For investors, it might be worthwhile to monitor Northrop Grumman closely and consider diversification to mitigate potential risks. Further, it would be beneficial to look for improvements in ROA and gross margin before making a large investment.

For those who are interested in delving deeper into the specifics, the subsequent section provides a comprehensive exploration of the criteria.

Profitability of Northrop Grumman (NOC)

Company has a positive net income?

Net income refers to the company's total profit after all expenses, taxes, and costs have been deducted. It indicates the firm's profitability and financial health.

In 2023, Northrop Grumman (NOC) reported a net income of $2.056 billion, which is a significant figure. Compared to the company's historical net income data over the past 20 years, including an all-time high of nearly $7 billion in 2021 and a few years of negative net income, 2023's figure is a positive sign. Therefore, based on the criterion, Northrop Grumman earns 1 point for having a positive net income.

Company has a positive cash flow?

The cash flow from operations (CFO) is vital as it indicates how well a company can generate cash to maintain and grow its operations. Positive CFO can suggest good operational efficiency.

For 2023, Northrop Grumman (NOC) reported a positive CFO of $3.875 billion. This is a notable improvement from $2.901 billion in 2022, representing an increase of approximately 33.6%. Further, analyzing the trend over the past two decades shows considerable growth and robustness in NOC's operational cash flow: from $798 million in 2003 to the current $3.875 billion. Such a consistent upward trajectory is a strong positive technological and operational efficiency signal. Therefore, for the Piotroski score, this criterion receives 1 point.

Return on Assets (ROA) are growing?

ROA stands for Return on Assets. It measures the profitability of a company in relation to its total assets. Essentially, it shows how efficient the company is at using its assets to generate profit.

For Northrop Grumman (NOC), the ROA for 2023 was 0.0455 compared to 0.1134 in 2022. This represents a significant decrease. As such, the Piotroski score is set to 0 for this criterion. Historically, Northrop Grumman has had variable ROA, with 2022 being one of the higher points in recent years. When compared to the industry median, which remained around 0.25, Northrop Grumman's lower ROA in 2023 signifies a concerning trend. Monitoring its efficiency in utilizing its assets going forward would be essential to maintain competitiveness and financial health.

Operating Cashflow are higher than Netincome?

Operating Cash Flow being higher than Net Income helps ensure the company's earnings quality and financial health.

For Northrop Grumman (NOC) in 2023, the Operating Cash Flow was $3.875 billion compared to a Net Income of $2.056 billion. This results in an Operating Cash Flow that is significantly higher than Net Income, adding 1 point for this criterion. Over the last 20 years, Northrop Grumman's Operating Cash Flow peaked in 2019 at $4.297 billion, while Net Income indicated phenomenal valuation with a surge at $7.005 billion in 2021. Nonetheless, consistently higher Operating Cash Flow than Net Income in numerous years showcases sustained financial strength and solid earnings not driven by accounting maneuvers, implying a good trend for the company.

Liquidity of Northrop Grumman (NOC)

Leverage is declining?

Change in Leverage refers to a company's debt level relative to its equity, and it shows if the company is increasing or decreasing its reliance on debt for financing.

In 2023, Northrop Grumman's leverage ratio increased to 0.3368 from 0.3115 in 2022. This represents the company's increased reliance on debt to finance its operations. Examining the historical leverage data over the past 20 years, we see periods of both increases and decreases in leverage ratios. For example, the leverage in 2019 was 0.3426, decreasing slightly in 2020 to 0.3509 but subsequently rising. This increasing leverage trend over time may imply growing financial risk and higher interest costs for Northrop Grumman. Consequently, no point is added for leverage trends, as the increase suggests higher debt levels and potentially greater financial risk.

Current Ratio is growing?

Change in Current Ratio refers to the liquidity metric that measures the ability of a company to pay its short-term obligations with its current assets. An increasing Current Ratio is generally a positive sign.

In 2023, the Current Ratio of Northrop Grumman (NOC) is 1.1477, compared to 1.0778 in 2022. This represents an increase, earning the company a 1 point in the Piotroski Analysis. This rise indicates an improvement in liquidity, suggesting that Northrop Grumman is in a better position to meet its short-term liabilities than it was the previous year. If we consider the historical Current Ratios for the past 20 years, there has been some variability, with significant fluctuations like the high of 2.3473 in 2017 and the low of 0.9032 in 2003. Compared to the industry median, which stands at 2.1805 in 2023, NOC is still lagging behind, indicating room for improvement. Nevertheless, the incremental rise in the Current Ratio is a positive signal for stakeholders.

Number of shares not diluted?

Change in Shares Outstanding is vital as it indicates the company's share repurchase or issuance strategies, affecting earnings per share and investor value.

Comparing Northrop Grumman's outstanding shares in 2022 (154,900,000 shares) with 2023 (151,500,000 shares), there was a decrease. This trend adds 1 point in the Piotroski Analysis because a reduction generally signifies share repurchase, which often increases earnings per share and reflects management's confidence in the company's valuation. Analyzing the last 20 years, the steady decline from 368,360,000 shares in 2003 to 151,500,000 shares in 2023 underscores a consistent strategy of buybacks, enhancing shareholder value.

Operating of Northrop Grumman (NOC)

Cross Margin is growing?

Gross margin measures the efficiency of a company's core activities and its ability to manage production costs effectively relative to its sales.

Comparing Northrop Grumman's gross margin, which decreased from 0.2042 in 2022 to 0.1667 in 2023, indicates a decline in efficiency in managing production costs relative to sales. This trend is deemed unfavorable for 2023, as evidenced by the drop from the previous year's gross margin. Moreover, the company’s gross margin was significantly below the industry median, which stood at 0.2484 in 2023. This suggests not only has Northrop Grumman fallen behind its past performance, but it also lags its peers significantly. Consequently, under the Piotroski F-Score methodology, this decrease results in a score of 0 points for this criterion.

Asset Turnover Ratio is growing?

Change in Asset Turnover measures the efficiency of a company in using its assets to generate sales. It is considered vital as higher turnover reflects improving operational performance.

Northrop Grumman (NOC) has shown an increase in Asset Turnover from 0.8479 in 2022 to 0.8702 in 2023. This upward movement in the ratio suggests a positive trend regarding the company’s operational efficiency. Historically, Northrop Grumman has seen fluctuations in this metric, however 2023’s ratio aligns closely with the improvements first observed around 2006-2008 period, where the ratio peaked above 1.0. Overall, with an increase in 2023, Northrop Grumman adds 1 point per the Piotroski score.