That is despite the negative FCF in Q1, which typically happens every year. For example, in the trailing 12 months to Q1, Stock Analysis reports that its FCF was $3.3 billion, equal to its 2025 FCF performance.

Moreover, as there are now 142 million shares outstanding, the new $9.88 annual DPS rate will cost Northrop Grumman just $1.403 billion. That is well below the expected $3.3 billion for 2026. So, the company can easily afford this dividend rate hike. That could help push NOC towards its average historical yield.

In addition, analysts are now projecting $46.81 billion in revenue next year. If the company maintains its 7.80% FCF margin, FCF could rise to $3.65 billion next year.

As a result, using a 4.1% FCF yield metric (i.e., based on its $3.3 billion TTM FCF and its existing $80 billion market cap), NOC could be worth:

$3.65b / 0.041 = $89 billion

That’s 11.25% higher than NOC’s existing market cap. In other words, using FCF yield, NOC is worth 11.25% more, or:

$563.68 x 1.1125 = $627.09 per share

Using Forward P/E, NOC is Worth Just 1% More

Using Seeking Alpha’s forward P/E average of 19.41x and analysts’ 2027 $30.14 earnings per share (EPS) forecasts, NOC could be worth $585 per share:

19.41 x $30.14 = $585.02 per share

Using Morningstar’s average forward P/E metric of 18.39x, NOC could be worth $554.27. So, on average, using forward P/E, NOC is worth just over Friday’s close, i.e., $569.65, or 1% higher.

Summary of Valuation Estimates for NOC

These three methods show that there is a range of fair value estimates for NOC:

Average Dividend Yield …………. $645.75  +14.5%

FCF Yield Valuation ……………….. $627.09  +11.3%

Forward P/E Metrics ……………… $569.65  +1.0%

Average Fair Value …………………….$614.16  +9.0%

That is about where it has traded over the last year (see above), or $623.

Note that there is no guarantee NOC will rise from here. As a result, one way to set a lower buy-in price and get paid while waiting is to short out-of-the-money (OTM) puts.

Shorting OTM NOC Puts

For example, the June 18 expiry option chain shows that the $545.00 put option contract has a midpoint premium of $8.40. That implies a short-seller of these puts can make an immediate yield of 1.54% over the next 19 days (i.e., $8.40/$545.00).

This means an investor first secures $54,500 in cash or buying power with their brokerage firm (i.e., to potentially be assigned to buy 100 shares at $545.00 if NOC falls to that price). The account will then receive $840 after entering a trade to “Sell to Open” 1 put contract at $545.00

Even if NOC 3.3% falls to $545.00 on or before June 18, and the collateral is assigned to buy 100 shares, the investors’ breakeven point is lower:

$545 – $8.40 = $536.60 breakeven point

As a result, the investor gains an annual dividend yield of 1.84% (i.e., $9.88/$536.60). That is much higher than its historical rate of 1.53%, implying a potential upside of 20%:

$645.75 / $536.60 -1 = 0.2034 = +20.34% upside

Moreover, investors can repeat this play each month even if NOC remains over this strike price. That way, the investor can enhance the expected return.

The bottom line is that NOC stock looks cheap here using three different valuation methods. One way to play it is to short our-of-the-money (OTM) put options in nearby expiry periods.

On the date of publication, Mark R. Hake, CFA did not have (either directly or indirectly) positions in any of the securities mentioned in this article. All information and data in this article is solely for informational purposes. This article was originally published on Barchart.com