Financial News
Northrop Grumman’s Recent Price Performance Looks to be Driven By Strong Financial Numbers
Most readers are probably aware that Northrop Grumman’s (NYSE:NOC) stock has gained by 13% in the last three months. Given the company’s strong success, we chose to dig deeper into its financial metrics, as a company’s long-term financial health frequently affects market results. We choose to focus on Northrop Grumman’s ROE in this post.
Return on equity, or ROE, is a valuable statistic for determining how well a company can create returns on the investment made by its shareholders. Simply expressed, it is used to evaluate a company’s profitability in relation to its equity capital.
How Do You Determine Return On Equity?
The return on equity formula is as follows:
Net Profit (from Continuing Operations) x Shareholders’ Equity = Return on Equity
So, using the above calculation, Northrop Grumman’s ROE is:
40% = US$5.5 billion US$14 billion (Based on the trailing twelve months to September 2022).
The ‘return’ is the amount earned after taxes throughout the previous twelve months. This indicates that the corporation earns $0.40 for every dollar invested by its shareholders.
What Is the Relationship Between ROE and Earnings Growth?
So far, we’ve learned that ROE gauges how effectively a company generates profits. We may estimate a company’s earnings growth potential based on how much of its profits it reinvests or “retains” and how well it does so. Other things being equal, firms with a high return on equity and profit retention have a faster growth rate than enterprises without these characteristics.
A comparison of Northrop Grumman’s Earnings Growth and 40% ROE
To begin, Northrop Grumman has a relatively high ROE, which is intriguing. Second, the company’s ROE is pretty impressive, especially when compared to the industry average of 10%. This certainly paved the way for Northrop Grumman’s modest 17% net income rise over the last five years of growth.
Next, we saw that Northrop Grumman’s growth is quite high when compared to the industry average growth of 5.5% during the same period, which is fantastic to see.
Earnings growth is a major consideration in stock pricing. The investor should try to determine whether the predicted rise or reduction in earnings, whichever is the case, is already priced in. This will allow them to determine whether the stock’s future appears promising or scary. What is the current market value of NOC? The intrinsic value infographic in our free research study assists in determining whether NOC is now mispriced by the market.
Is Northrop Grumman Getting the Most Out of Its Profits?
Northrop Grumman has a low three-year median payout ratio of 21%, which means that the business keeps 79% of its profits. This indicates that management is reinvesting the majority of profits to build the business.
Furthermore, Northrop Grumman has paid dividends for at least ten years, indicating that the corporation is serious about sharing profits with shareholders. According to the most recent analyst consensus statistics, the company’s projected payout ratio is expected to climb to 30% during the next three years. As a result of the predicted increase in the payout ratio, the company’s ROE is expected to fall to 26% during the same period.
Conclusion
We are generally impressed with Northrop Grumman’s performance. We particularly like the fact that the company is reinvesting extensively and profitably in its operations. This, unsurprisingly, has resulted in significant earnings growth. As a result, a review of the most recent expert projections indicates that the company’s future earnings growth is projected to decelerate. Check out this visualization of analyst estimates for the company to learn more about the most recent analyst expectations for the company.
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