How Do Recent Defense Spending Proposals Impact Northrop Grumman’s 2025 Valuation?

Wondering whether Northrop Grumman is still a buy after its impressive run? Let's dig into what is beneath the headline numbers and see if there is real value here. Despite a recent dip of 4.5% over the past week and a 5.0% drop for the month, Northrop Grumman is still up 23.6% year-to-date and 104.5% over five years. Market sentiment has shifted lately following news around increased defense spending proposals and several high-profile contract announcements. These developments have kept Northrop Grumman in the spotlight and have fueled both optimism and a reassessment of risk for investors closely watching the sector. Currently, Northrop Grumman scores a 3 out of 6 on our value checks, indicating it is considered undervalued in half of the ways we assess. We will break down what these valuation methods show, and at the end of this article, take a look at an even smarter way to judge value.

Find out why Northrop Grumman's 15.7% return over the last year is lagging behind its peers.

Approach 1: Northrop Grumman Discounted Cash Flow (DCF) Analysis

A Discounted Cash Flow (DCF) model estimates a company's true value by projecting its future cash flows and discounting them back to today's dollars. This method helps investors understand whether a stock is trading above or below its intrinsic value.

For Northrop Grumman, the current Free Cash Flow stands at $1.75 billion. Analysts have forecasted steady growth, with Free Cash Flow projected to reach approximately $3.86 billion by 2029. While analysts supply estimates for the next five years, projections beyond that are created by Simply Wall St using historical trends and reasonable assumptions.

Based on the 2 Stage Free Cash Flow to Equity model, Northrop Grumman's intrinsic value is estimated at $494.26 per share. However, the DCF analysis shows the stock is currently trading at a 17.1% premium to its estimated value. This means Northrop Grumman appears overvalued according to this approach.

Result: OVERVALUED

Our Discounted Cash Flow (DCF) analysis suggests Northrop Grumman may be overvalued by 17.1%. Discover 837 undervalued stocks or create your own screener to find better value opportunities.NOC Discounted Cash Flow as at Oct 2025

Head to the Valuation section of our Company Report for more details on how we arrive at this Fair Value for Northrop Grumman.

Approach 2: Northrop Grumman Price vs Earnings (PE)

The Price-to-Earnings (PE) ratio is a widely used valuation approach for profitable companies, as it links a firm’s market value to its actual earning power. For established companies with consistent profits like Northrop Grumman, the PE ratio helps investors compare what they pay for each dollar of earnings against other businesses and industry norms.

Story Continues

Generally, higher earnings growth prospects and lower risk deserve a higher "normal" PE ratio. Lower growth or more risk tends to pull the ratio down. Northrop Grumman currently trades at a PE ratio of 20.5x. This is considerably lower than the Aerospace & Defense industry average PE of 38.9x and the peer group average of 37.3x.

Simply Wall St’s proprietary “Fair Ratio” refines the PE comparison further. Instead of just looking at peer or industry averages, the Fair Ratio reflects expectations for Northrop Grumman’s growth, profit margins, risk profile, and even its market cap. For Northrop Grumman, this Fair Ratio is 26.2x, providing a more tailored benchmark that considers the unique dynamics at play.

With Northrop Grumman’s current PE ratio at 20.5x and the Fair Ratio at 26.2x, the stock appears undervalued on this metric. This suggests the market is currently assigning a lower valuation than what the company’s fundamentals might warrant.

Result: UNDERVALUEDNYSE:NOC PE Ratio as at Oct 2025

PE ratios tell one story, but what if the real opportunity lies elsewhere? Discover 1410 companies where insiders are betting big on explosive growth.

Upgrade Your Decision Making: Choose your Northrop Grumman Narrative

Earlier we mentioned that there is an even better way to understand valuation, so let's introduce you to Narratives. A Narrative is Simply Wall St’s easy, story-driven tool for shaping your investment thinking: you connect your view of a company's future, such as what you believe about Northrop Grumman's revenue, profits, or margins, to your own financial forecast, then to what you think is a fair price for the stock.

Rather than just crunching numbers, Narratives let you tie together the “why” behind your numbers and share your perspective with others. When you set your Narrative, Simply Wall St automatically updates your fair value as news, earnings, or sector trends change, so your analysis is always current.

You can access these Narratives directly from Northrop Grumman’s Community page, where millions of investors are already building and comparing ideas. For example, recent Narratives on Northrop Grumman range from a high price target of $690 based on bullish defense budgets and robust contract wins, to a cautious target as low as $510 reflecting concerns over execution risks and sector headwinds. Narratives make it easy to see and test your view against current market pricing. This helps you decide your position with both foresight and confidence.

Do you think there's more to the story for Northrop Grumman? Head over to our Community to see what others are saying!NYSE:NOC Community Fair Values as at Oct 2025

This article by Simply Wall St is general in nature. We provide commentary based on historical data and analyst forecasts only using an unbiased methodology and our articles are not intended to be financial advice. It does not constitute a recommendation to buy or sell any stock, and does not take account of your objectives, or your financial situation. We aim to bring you long-term focused analysis driven by fundamental data. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Simply Wall St has no position in any stocks mentioned.

Companies discussed in this article include NOC.

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