Financial Survey: Arconic (ARNC) & Northrop Grumman (NYSE:NOC)

Northrop Grumman (NYSE: NOC) and Arconic (NYSE:ARNC) are both large-cap industrials companies, but which is the better stock? We will compare the two businesses based on the strength of their institutional ownership, earnings, risk, profitability, dividends, analyst recommendations and valuation.

Institutional and Insider Ownership

80.6% of Northrop Grumman shares are held by institutional investors. Comparatively, 74.6% of Arconic shares are held by institutional investors. 0.7% of Northrop Grumman shares are held by insiders. Comparatively, 0.1% of Arconic shares are held by insiders. Strong institutional ownership is an indication that endowments, hedge funds and large money managers believe a company is poised for long-term growth.

Analyst Recommendations

This is a summary of current ratings and recommmendations for Northrop Grumman and Arconic, as reported by MarketBeat.

Sell Ratings Hold Ratings Buy Ratings Strong Buy Ratings Rating Score
Northrop Grumman 0 4 10 0 2.71
Arconic 0 2 5 0 2.71

Northrop Grumman currently has a consensus target price of $330.24, suggesting a potential downside of 7.32%. Arconic has a consensus target price of $30.43, suggesting a potential upside of 20.32%. Given Arconic’s higher possible upside, analysts clearly believe Arconic is more favorable than Northrop Grumman.

Valuation and Earnings

This table compares Northrop Grumman and Arconic’s top-line revenue, earnings per share (EPS) and valuation.

Gross Revenue Price/Sales Ratio Net Income Earnings Per Share Price/Earnings Ratio
Northrop Grumman $25.80 billion 2.40 $2.02 billion $11.47 31.07
Arconic $12.96 billion 0.94 -$74.00 million ($0.22) -114.95

Northrop Grumman has higher revenue and earnings than Arconic. Arconic is trading at a lower price-to-earnings ratio than Northrop Grumman, indicating that it is currently the more affordable of the two stocks.

Dividends

Northrop Grumman pays an annual dividend of $4.00 per share and has a dividend yield of 1.1%. Arconic pays an annual dividend of $0.24 per share and has a dividend yield of 0.9%. Northrop Grumman pays out 34.9% of its earnings in the form of a dividend. Arconic pays out -109.1% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Northrop Grumman has increased its dividend for 10 consecutive years. Northrop Grumman is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Profitability

This table compares Northrop Grumman and Arconic’s net margins, return on equity and return on assets.

Net Margins Return on Equity Return on Assets
Northrop Grumman 7.81% 37.28% 8.28%
Arconic -0.57% 11.29% 3.20%

Risk & Volatility

Northrop Grumman has a beta of 0.82, meaning that its share price is 18% less volatile than the S&P 500. Comparatively, Arconic has a beta of 0.93, meaning that its share price is 7% less volatile than the S&P 500.

Summary

Northrop Grumman beats Arconic on 13 of the 16 factors compared between the two stocks.

Northrop Grumman Company Profile

Northrop Grumman Corporation is a global security company. The Company provides products, systems and solutions in autonomous systems; cyber; command, control, communications and computers, intelligence, surveillance and reconnaissance (C4ISR); strike, and logistics and modernization. The Company’s segments include Aerospace Systems, Mission Systems and Technology Services. The Company’s Aerospace Systems segment is engaged in the design, development, integration and production of manned aircraft, autonomous systems, spacecraft, high-energy laser systems, microelectronics and other systems/subsystems. The Mission Systems segment offers mission solutions and multifunction systems for Department of Defense (DoD), intelligence community, international, federal civil and commercial customers. The Technology Services segment provides logistics solutions supporting the full life cycle of platforms and systems for global defense and federal-civil customers.

Arconic Company Profile

Arconic Inc., formerly Alcoa Inc., is engaged in lightweight metals engineering and manufacturing. The Company operates through three segments: Global Rolled Products, Engineered Products and Solutions, and Transportation and Construction Solutions. Its multi-material products, which include aluminum, titanium and nickel, are used around the world in markets, such as aerospace, automotive, commercial transportation and packaging. The Global Rolled Products segment produces a range of aluminum sheet and plate products for the aerospace, automotive, commercial transportation, brazing and industrial markets. The Engineered Products and Solutions segment develops and manufactures products for the aerospace (commercial and defense), commercial transportation and power generation end markets. The Transportation and Construction Solutions segment produces products that are used in the non-residential building and construction and commercial transportation end markets.

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