The Zacks Analyst Blog Highlights: Northrop Grumman, General Dynamics, Huntington Ingalls, New York Times and InterActiveCorp

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Sep 27, 2012, 09:30 ET

CHICAGO, Sept. 27, 2012 /PRNewswire/ -- Zacks.com announces the list of stocks featured in the Analyst Blog. Every day the Zacks Equity Research analysts discuss the latest news and events impacting stocks and the financial markets. Stocks recently featured in the blog include Northrop Grumman Corporation (NYSE:NOC), General Dynamics Corporation's (NYSE:GD), Huntington Ingalls Industries Inc. (NYSE:HII), The New York Times Company (NYSE:NYT) and InterActiveCorp (Nasdaq:IACI).

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Here are highlights from Wednesday's Analyst Blog:

Northrop Buys M5 Network Security

Northrop Grumman Corporation (NYSE:NOC) has closed the acquisition of M5 Network Security Pty Ltd. for an undisclosed amount. Canberra, Australia-based, M5 Network Security Pty Ltd. provides cyber security and secure mobile communications products and services.

M5 Network Security endows Australian military and intelligence organizations with advanced analytics. The acquisition would enhance Northrop's Australian market exposure in the fields of cyber security and communication solutions.

The aerospace companies seem to be involved in acquiring companies that provide cyber security tools and services. Recently, one of the company's peers General Dynamics Corporation also completed the acquisition of Fidelis Security Systems, Inc. Fidelis is a market leader in cyber security tools that provide real-time network visibility, analysis and control. Its network security solutions assist customers in preventing advanced threats and data breaches.

Northrop Grumman is a leading global security company providing innovative systems, products and solutions in aerospace, electronics, information systems, and technical services to government and commercial customers worldwide. At the end of the second quarter of 2012, cash and cash equivalents were $3.1 billion, up from $2.8 billion in the second quarter of 2011. Cash provided by (used in) continuing operations during the quarter was $876 million versus ($34) million in the year-ago period.

Going forward, Northrop Grumman's strong balance sheet and cash flows provide substantial financial flexibility and a cushion for improving shareholder value through incremental dividend, ongoing share repurchases and earnings accretive acquisitions.

Recently, the company had also authorized an increase in the company's outstanding share repurchase authorization to $2 billion of common stock. As of June 30, 2012, Northrop Grumman had 248 million shares outstanding and $1.1 billion remaining under its share repurchase authorization.

Moreover, Northrop has a strong presence in Air Force, Space & Cyber Security programs. Revenue and earnings growth continue to be driven by its strong presence in the current focus areas of cyber security, modernization of defense and homeland security assets, intelligence, surveillance and reconnaissance systems, advanced electronics and software development.

However, we expect these positives to be offset by apprehension regarding defense cutbacks on high-cost platform programs, over-exposure to the DoD budget, lower backlog, cost over-runs and reductions in the Afghanistan and Iraq operations. The company presently retains a short-term Zacks #3 Rank (Hold) that corresponds with our long-term Neutral recommendation on the stock.

General Dynamics Wins New Logistics Contract

General Dynamics Corporation's (NYSE:GD) business unit, General Dynamics Information Technology, has received a three and a half years contract worth $94.4 million to support the Total Integrated Ground Equipment Readiness Contractor Logistics Support (TIGER CLS) contract of U.S. Marine Corps Systems Command.

The contract follows a multiple-award, indefinite delivery, indefinite quantity contract awarded in May 2010 worth $6.6 billion if all options are exercised under Defense Intelligence Agency ("DIA") Solutions for the Information Technology Enterprise (SITE) contract.

Per the current contract, the company will provide command, control, communications, computers, intelligence, surveillance and reconnaissance (C4ISR) systems with lucrative, novel technology, logistics and program management support. These C4ISR systems provide critical information and communications links to numerous stakeholders worldwide of Marine Corps' intelligence units.

Apart from this contract, General Dynamics Information Technology has been managing daily operations of global mission-critical IT services for Defense and Intelligence Community customers for a long time. The business unit has been successful in delivering IT solutions for the Battlefield Information Collection and Exploitation System, INSCOM Information Technology Support Services and the Air Force Distributed Common Ground System programs.

Acquisition of companies like Open Kernel Labs, Inc. and Fidelis Security Systems, Inc. has added to the portfolio of General Dynamics Information Technology and helped it to complete its task orders.

Going forward, key growth drivers for the company include the improving business jet market, its stable business of U.S. military vehicles, an ongoing share repurchase program and strong cash flow generation. However, the company is largely tied to the U.S. defense budget, where the threat of budget cuts is looming. Also, we are concerned about the risks related to the execution of key projects.

The company presently retains a short-term Zacks #4 Rank (Sell). We have a long-term Neutral recommendation on the stock.

General Dynamics is expected to release its third quarter 2012 results on October 24, 2012. The Zacks Consensus Estimates for the third quarter and full year 2012 are $1.77 and $7.10, respectively.

Based in Falls Church, Virginia, General Dynamics engages in mission-critical information systems and technologies; land and expeditionary combat vehicles, armaments and munitions; shipbuilding and marine systems; and business aviation. The company operates through four segments: Information Systems & Technology, Combat Systems, Marine Systems, and Aerospace.

The company mainly competes with Northrop Grumman Corporationand Huntington Ingalls Industries Inc. (NYSE:HII).

NY Times Divestiture Activities

The economy, which has still not completely awakened from its state of hibernation, has been impeding the growth of publishing companies, and The New York Times Company (NYSE:NYT) is no exception.

Challenging economic conditions, along with softness in advertising demand, have been weighing upon the company's performance. The publishing companies have been trying to shield themselves from the impact of an unstable market and have been contemplating new revenue generating possibilities.

Publishing companies have been offloading assets that bear no direct relation with the core operations. The New York Times Company recently completed the sale of About Group, which it acquired in 2005, to InterActiveCorp (Nasdaq:IACI) for a consideration of $300 million. The About Group segment comprises the websites About.com, ConsumerSearch.com and Caloriecount.com, along with other related businesses.

Management had to take the hard decision to sell About Group, which has been facing declining revenue since the last two quarters. About Group segment's revenue dropped 8.7% in the second quarter of 2012 due to falls witnessed in both cost-per-click and display advertising. During the first quarter, revenue declined 23.1%.

Prior to this, in May 2012, The New York Times Company divested its remaining stake (210 Class B units) in the Fenway Sports Group, the owner of the Boston Red Sox and the Liverpool Football Club, for $63 million.

Initially, The New York Times Company used to hold a 17.75% stake (or 750 Class B units) in Fenway Sports Group, which it had acquired in 2002 for $75 million. But the economic downturn in 2008 and sinking print advertising demand compelled management to look for strategic options to get rid of the non-core assets, and infuse the proceeds to augment its struggling publishing business.

Another example of shedding the assets by the company is the sale of Regional Media Group in December 2011 – consisting of 16 regional newspapers, print publications and associated ventures – to Halifax Media Holdings LLC, the proprietor of The Daytona-Beach News Journal in Florida, for approximately $143 million.

Waning print advertising revenue in an uncertain economy, compelled The New York Times Company to take this tough decision of divesting Regional Media Group, part of The New York Times Media Group. This would allow the company to re-focus on its core newspapers and pay more attention to its online activities. The decision to offload the division is also considered part of the cost containment efforts undertaken to stay afloat in this turbulent environment.

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