Defense Spending Gets a Major Boost

Northrop Grumman Corp (NOC) shares surged Thursday as defense contractors collectively celebrated President Donald Trump's announcement calling for a $1.5 trillion military budget in 2027. That's a 50% jump from the previous $1 trillion target, and it's the kind of number that makes defense investors very happy.

Northrop Grumman led the rally with shares jumping 10% in early trading, but the enthusiasm spread across the sector. Major players like Lockheed Martin Corp and RTX Corp also posted solid gains as the market digested what increased defense spending could mean for future contract awards.

Trump didn't just announce bigger budget numbers. He also took aim at defense companies for focusing too much on dividends and stock buybacks instead of investing in infrastructure. It's an interesting critique considering the stock prices are climbing on his announcement, but the message clearly resonated with investors betting on a sustained increase in military spending.

New Marine Corps Contract Adds Fuel

Timing is everything, and Northrop Grumman had some extra news to sweeten Thursday's rally. The company announced a partnership with Kratos Defense to rapidly develop collaborative combat aircraft for the U.S. Marine Corps.

The project will combine Kratos' Valkyrie unmanned system with Northrop's advanced mission kit and open-architecture autonomy software. The goal is creating a cost-effective, flexible, high-endurance aircraft that complements crewed fighters. It's exactly the type of next-generation defense technology that benefits from increased military budgets.

What the Charts Say

Beyond the headlines, Northrop Grumman's technical indicators are painting a picture of strength. The stock is currently trading 10.1% above its 50-day simple moving average and 9.1% above its 20-day SMA, which signals solid short-term momentum. Over the past year, shares have climbed 35.90%, and they're currently positioned much closer to their 52-week highs than lows.

The RSI sits at 49.99, which is basically neutral territory. That means the stock isn't overbought or oversold right now. Meanwhile, the MACD is above its signal line, suggesting bullish momentum. Put it together and you've got mixed signals—momentum is there, but the stock isn't screaming "overheated" yet.

Traders are watching two key levels: resistance at $641.00 and support at $553.50. Breaking through that resistance could open up more upside, while falling below support might indicate the rally is losing steam.

Earnings and Analyst Expectations

Investors won't have to wait long for the next data point. Northrop Grumman reports earnings on January 27, and expectations are running high.

Analysts are projecting earnings per share of $6.96, up from $6.39 a year ago. Revenue estimates come in at $11.61 billion, compared to $10.69 billion in the prior year period. The stock trades at a P/E ratio of 20.8x, which suggests fair valuation in the current market environment.

The analyst community maintains a Buy rating on the stock with an average price target of $636.72. Recent moves include Morgan Stanley maintaining an Overweight rating while lowering their target to $714.00, Alembic Global upgrading to Overweight with a $662.00 target, and Citigroup initiating coverage with a Buy rating and $654.00 target.

Here's the interesting part: while the stock trades at what looks like a reasonable P/E multiple, analysts expect 9% earnings growth. That growth justifies current levels in their view, but it also means there's essentially 0% upside to analyst targets from here. The stock is priced for the growth that's expected.

Scorecard: Momentum Meets Premium Valuation

Looking at Northrop Grumman's fundamentals through a scoring lens reveals a classic high-momentum, expensive stock setup.

Momentum scores a strong 73.51 out of 100, confirming the stock is outperforming the broader market. Quality comes in at 77.18 out of 100, indicating a healthy balance sheet. But Value scores just 30.82 out of 100, warning that the stock is trading at a steep premium relative to peers.

The takeaway? This is a momentum play priced for perfection. The trend is strong and the fundamentals are solid, but there's not much room for disappointment. Investors riding this rally should consider using tight stop-losses given the premium valuation.

ETF Exposure Worth Watching

Northrop Grumman carries significant weight in several major defense ETFs, which matters more than you might think. The iShares US Aerospace & Defense ETF (ITA) holds NOC at 4.37% weight, the Invesco Aerospace & Defense ETF (PPA) at 5.60% weight, and the Global X Defense Tech ETF (SHLD) at 4.53% weight.

Why does this matter? Because significant inflows or outflows in these ETFs will force automatic buying or selling of Northrop Grumman shares. If investors pile into defense ETFs following Trump's budget announcement, that creates mechanical buying pressure on NOC. The reverse is also true if sentiment shifts.

Current Trading Action

Northrop Grumman shares were up 2.7% at $592.66 at the time of publication Thursday, according to market data. That's a bit of a pullback from the 10% early-morning surge, but still represents a solid gain on the day. The stock is digesting the budget news and the Marine Corps contract announcement while traders position ahead of the January 27 earnings report.