RBC Capital Reviews Northrop Grumman's Earnings

In a report published Thursday, RBC Capital Markets analysts maintained an Outperform rating on

, while raising the price target from $176 to $178. Northrop Grumman reported its 1Q15 EPS, sales and segment operating margin ahead of expectations. The company reported double-digit growth each in international sales, unmanned and space work segments. "A solid start to the year with actual growth in year-on-year sales and with book-to-bill over 1x; a potential good sign given what should be a stabilizing defense budget environment," the analysts said, while adding that the current guidance still looks "conservative." The EPS estimates for 2015 and 2016 have been raised from $9.61 to $9.85 and from $10.99 to $11.13, respectively, to reflect higher sales and new pension guidance. "Northrop has continued to focus the bulk of its free cash flow on buying back stock, and the reduction in the share count, coupled with a tailwind from CAS pension reimbursements (even if more moderate than previously thought), should be helpful to EPS over the next couple of years. This should be enough to offset negative revenue trends, and any operating margin pressure, assuming that there are no major shortfalls on the FAS side of pension accounting," the analysts wrote.