Is Northrop Grumman Stock a 2026 Buy After Its 2025 Earnings Beat?

Core Viewpoint - Northrop Grumman outperformed its peers in a challenging earnings season for defense stocks, reporting better-than-expected earnings and sales growth, leading to a rise in its stock price [1][2]. Financial Performance - Northrop Grumman reported an adjusted profit of $7.23 per share for Q4, exceeding the expected $6.96, while GAAP earnings reached $9.99 per share [2]. - The company achieved quarterly sales of $11.7 billion, slightly above the forecast of $11.6 billion, and experienced a 10% year-over-year sales growth in Q4 [3][2]. - For the full year, Northrop's sales grew by 2% to $42 billion, with earnings per share increasing by 3% [3]. Cash Flow and Valuation - Free cash flow for Q4 surged by 84% to $2.2 billion, and for the year, it rose by 27% to $3.3 billion [4]. - Northrop Grumman's full-year net profit was reported at $4.2 billion, translating to $29.08 per diluted share, while its price-to-earnings ratio stands at 24.4x and price-to-free cash flow ratio at 30.5 [4]. Future Guidance - The company forecasts approximately 4% sales growth in 2026, projecting sales of $43.8 billion and adjusted earnings of about $27.65 per share, both of which fall short of analyst expectations [6]. - Free cash flow is expected to remain steady at around $3.3 billion in 2026, indicating limited growth potential due to a book-to-bill ratio of 1.0 in 2025 [7].