Barclays analysts demoted Northrop Grumman (NYSE:) at Equal Weight from Overweight, cutting the company’s price target on the stock 22% to $450 from $580 in a note Thursday.
Analysts said they were downgrading the stock to reflect a weaker forecast for FCF during the ramp period for B-21/GBSD over the next few years.
“Our lower forecast is driven by our view that NOC margins are likely to deteriorate more than expected, diluting a significant portion of the growth seen in the B-21/GBSD outlook,” the analysts wrote. “As we now see NOCs outperforming their peers less and less, we believe a lower valuation premium is warranted.”
They explained that they still see a superior revenue growth profile for NOC compared to its peers. However, they are also seeing their margins drop to around 10% as B-21/GBSD production increases.
“We estimate NOC is trading at a 25% premium to its peers (out of 2025) on average, which we expect will compress,” the analysts said.
CNO shares are down more than 1% at the time of writing.