Northrop Grumman (NOC) Operational Quality Rating (A) | 2025 Old York Registry
Industrials | Aerospace & Defense
By: Old York Financial
A Private Principal Report
the verdict
Old York Financial has assigned Northrop Grumman (NOC) an Operational Quality (A) Rating.
Northrop is the "Intel" of Defense, highly technical and capital-intensive. They own absolute Monopoly Characteristics in strategic deterrence (the Sentinel ICBM) and stealth (B-21 Raider). However, NOC is currently in a "heavy lift" phase. They took a $477M loss provision on the B-21 program early in 2025 due to production costs, which creates a drag on their Capital Velocity. They remain an (A) because they are a structural cornerstone of national security, but they are further from the (AAA) "Asset Light" ideal than a pure software or services player.
the old york analysis
owner earnings: the R&D cycle
NOC’s cash flow is lumpy but robust, reflecting the transition from development to production on massive programs.
2025 Total Revenue: $42.0 Billion
2025 Net Cash from Operations: $4.8 Billion
(-) Maintenance CapEx: ($1.45 Billion)
(+) Depreciation & Amortization: ~ $1.1 Billion
OLD YORK OWNER EARNINGS: $4.45 Billion
Analyst Note: FCF grew 26% YoY in 2025. While impressive, CapEx remains high at ~3.5% of sales as they build out solid rocket motor capacity and B-21 tooling.
the equity retraction (share retirement)
The Retirement Factor: Northrop is a disciplined share subtractor.
2025 Performance: Returned $2.5 Billion to shareholders via $1.6B in buybacks and $0.9B in dividends.
Share Count Trend: Weighted average shares fell from 147M to 143M (~2.7% reduction in one year).
The Verdict: Consistent share retirement is a hallmark of the (A) rating, proving management isn't wasting owner earnings on "empire building" acquisitions.
operational efficiency
ROIC: 10.8% (Stable, but well below our 15% AAA benchmark).
Net Profit Margin: 10.0% (Healthy, but pinched by B-21 initial production losses).
Operating Margin: 10.8% (Actually increased slightly from 10.6% in 2024).
EPS Growth (1-Year): 2.6% (Modest, largely due to the MTM pension adjustments and high development costs).
the fortress check
The Backlog: $95.7 Billion (Record high). Book-to-bill of 1.1x.
Monopoly Moat: They are the prime for the B-21 Raider. There is no alternative. This is a 30-year revenue stream.
Space Systems: Now a $11B+ segment. Northrop is the dominant player in restricted space programs and missile warning.
why it’s rated (A)
High Barriers to Entry: You cannot "disrupt" a nuclear ICBM program.
Cash Conversion: FCF conversion is high (~80% of Net Income), allowing for the $1.6B in buybacks.
The Cap: The 10.8% ROIC and the single-digit revenue growth (2.2%) keep it out of the (AA) and (AAA) tiers. It is a Tier-1 industrial, not a capital-efficient software monopoly.
final determination
Rating: Old York Quality (A)
Classification: The Stealth Sovereign.
Northrop Grumman is a "Backlog Fortress." It earns an (A) because its terminal value is guaranteed by its monopoly on stealth and strategic deterrence, though its current "Asset Heavy" production ramp limits its immediate capital velocity.
Disclaimer: Old York Financial operates privately as a principal and sells corporate advisory. Old York Financial is not an accountant, a financial advisor, a broker, an agent, a lawyer, or a portfolio manager.
