Northrop Grumman shares rise on buyback plans
Shares of Northrop Grumman rise to new high on plans to buyback additional $4B in stock
NEW YORK (AP) -- Shares in companies that do defense contracting work rose across the board Friday on the heels of a huge stock buyback program announced by Northrop Grumman, sending it and others to all-time highs.
Northrop announced a $4 billion stock repurchase authorization Thursday, bringing its overall buyback up to $5 billion. The company said that it plans to buy back a quarter of its outstanding shares by the end of 2015.
The defense industry has been forced to ratchet down spending due to massive Pentagon spending cuts. Judging by the share movement across the entire sector, investors remain confident that contactors can thrive.
Northrop shares have jumped more than 40 percent in the past year, and more that 17 percent this month. Shares of General Dynamics are up 22 percent over the past year, Lockheed Martin is up 28 percent, and Raytheon is up 33 percent. All are trading at all-time highs Friday.
Citi analyst Jason Gursky, who backed his "Buy" rating on Northrop, said the share repurchase authorization was well above his expectation of $3.8 billion in repurchases through the fourth quarter of 2015.
Gursky said that when combined with the company's 3 percent dividend yields, the buyback represents about 12 percent annual cash returns for investors.
By buying its own shares, Northrop has provided investors with some certainty, Gursky said, given the tough market conditions for defense contractors.
Northrop Grumman Corp., based in Falls Church, Va., rose $3.17, or 4 percent, to $82.19 after peaking at an all-time high of $83.27 earlier in the day. Lockheed Martin Corp. rose 1.8 percent to $105.86. General Dynamics Corp. rose 1.8 percent to $77.52. Raytheon Co. rose 1.5 percent to $66.66.
