Northrop Grumman CorporationNOCNYSE

Overview Intelligence Charts News Fundamentals Key Metrics TTM Financials Earnings Growth Rating Analysts Institutional Peers Historical

DCF Valuation

DCF Valuation Summary

Strong Buy

Fair Value: $1,086.72 per share(market-calibrated)

+41.5%

Upside to Fair Value

Current

$768.02

Pure Model

$1,169.36

Fair Value

$1,086.72

Bull Case

$1,413.22

Bear Case

$1,011.48

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

0.50%

Calibrated Growth

1.64%

Fair value uses 65% model / 35% market-implied terminal growth. Pure model: $1,169.36.

What's Driving This Ratingfor NOC

↓

CapEx normalizing toward maintenance

Historical CapEx is 3.74% of revenue (heavy investment phase). Model fades this to 3.50% by Year 10, freeing up ~$163M in annual FCF. This is the biggest driver of long-term cash flow improvement.

→

Moderate revenue growth

Analyst consensus projects 4.66% revenue growth, fading to 2.25% by Year 10. Revenue reaches $68.4B (vs $42.0B today).

🎯

Market pricing in lower growth than model

The market implies only 0.50% perpetual growth — 175bps below the model's 2.25%. This suggests the market sees headwinds or risks not in the model.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 64.75% indicates efficient cash generation. FCF reaches $7.9B by Year 10 (11.50% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)0.04

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)4.68%

Cost of Debt

Pre-tax Cost of Debt2.93%

Tax Rate17.48%

After-tax Cost of Debt2.42%

Equity Weight (E/V)84.81%

Debt Weight (D/V)15.19%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (84.81% × 4.68%) + (15.19% × 2.42%)

= 5.50%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$43.9B	$49.1B	$55.6B	$62.2B	$68.4B
EBIT	$6.4B	$7.1B	$8.1B	$9.0B	$10.0B
Tax	$1.1B	$1.2B	$1.4B	$1.6B	$1.7B
NOPAT	$5.3B	$5.9B	$6.7B	$7.5B	$8.2B
+ Depreciation	$1.4B	$1.6B	$1.8B	$2.0B	$2.2B
- Capex	$1.6B	$1.8B	$2.0B	$2.2B	$2.4B
- Δ NWC	$196M	$249M	$375M	$310M	$151M
Free Cash Flow	$4.8B	$5.4B	$6.1B	$6.9B	$7.9B
Discount Factor	0.948	0.852	0.765	0.687	0.585
Present Value	$4.6B	$4.6B	$4.6B	$4.8B	$4.6B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$7.9B

Terminal Growth Rate2.25%

WACC5.50%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$247.6B

PV of Terminal Value$145.0B

Exit Multiple Method

Year 10 EBITDA$12.2B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$218.8B

PV of Terminal Value$128.1B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$46.6B

PV of Terminal Value$145.0B

Enterprise Value$191.6B

(-) Net Debt$15.3B

Equity Value$176.2B

Shares Outstanding144M

Price per Share$1,228.13

Exit Multiple Method

PV of Projected FCFs$46.6B

PV of Terminal Value$128.1B

Enterprise Value$174.7B

(-) Net Debt$15.3B

Equity Value$159.4B

Shares Outstanding144M

Price per Share$1,110.60

Pure Model Fair Value

$1,169.36

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
3.50%	$1,670.04	$1,742.88	$1,667.77	$1,596.21	$1,528.00
4.50%	$1,276.68	$1,379.91	$1,529.04	$1,596.21	$1,528.00
5.50%	$1,046.74	$1,099.87	$1,169.36	$1,264.12	$1,401.00
6.50%	$889.44	$920.64	$959.18	$1,007.99	$1,071.82
7.50%	$771.80	$791.70	$815.40	$844.08	$879.50

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$1,011.48

31.7% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 0.05

Base Case

$1,169.36

52.3% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 0.04

Bull Case

$1,413.22

84.0% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 0.30

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth4.66%

Year 3 Revenue Growth5.34%

Year 5 Revenue Growth7.24%

Year 7 Revenue Growth5.24%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin14.54%

Tax Rate17.48%

Historical Capex / Rev3.74%

Terminal Capex / Rev3.50%

NWC / Revenue10.00%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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