Northrop Grumman (NYSE:NOC) and Heico (NYSE:HEI) Critical Review

Heico (NYSE:HEI) and Northrop Grumman (NYSE:NOC) are both large-cap industrials companies, but which is the superior stock? We will compare the two companies based on the strength of their profitability, valuation, risk, analyst recommendations, earnings, dividends and institutional ownership.

Dividends

Heico pays an annual dividend of $0.26 per share and has a dividend yield of 0.1%. Northrop Grumman pays an annual dividend of $9.88 per share and has a dividend yield of 1.8%. Heico pays out 4.6% of its earnings in the form of a dividend. Northrop Grumman pays out 31.4% of its earnings in the form of a dividend. Both companies have healthy payout ratios and should be able to cover their dividend payments with earnings for the next several years. Heico has increased its dividend for 17 consecutive years and Northrop Grumman has increased its dividend for 22 consecutive years. Northrop Grumman is clearly the better dividend stock, given its higher yield and longer track record of dividend growth.

Volatility and Risk

Heico has a beta of 1.04, suggesting that its share price is 4% more volatile than the S&P 500. Comparatively, Northrop Grumman has a beta of -0.11, suggesting that its share price is 111% less volatile than the S&P 500.

Earnings & Valuation

This table compares Heico and Northrop Grumman”s top-line revenue, earnings per share and valuation.

	Gross Revenue	Price/Sales Ratio	Net Income	Earnings Per Share	Price/Earnings Ratio
Heico	$4.49 billion	10.94	$690.39 million	$5.60	62.74
Northrop Grumman	$41.95 billion	1.91	$4.18 billion	$31.48	17.91

Northrop Grumman has higher revenue and earnings than Heico. Northrop Grumman is trading at a lower price-to-earnings ratio than Heico, indicating that it is currently the more affordable of the two stocks.

Profitability

This table compares Heico and Northrop Grumman’s net margins, return on equity and return on assets.

	Net Margins	Return on Equity	Return on Assets
Heico	16.08%	17.52%	8.86%
Northrop Grumman	10.48%	24.25%	8.15%

Insider & Institutional Ownership

27.1% of Heico shares are owned by institutional investors. Comparatively, 83.4% of Northrop Grumman shares are owned by institutional investors. 4.9% of Heico shares are owned by company insiders. Comparatively, 0.2% of Northrop Grumman shares are owned by company insiders. Strong institutional ownership is an indication that large money managers, endowments and hedge funds believe a company is poised for long-term growth.

Analyst Recommendations

This is a summary of current recommendations for Heico and Northrop Grumman, as reported by MarketBeat.com.

	Sell Ratings	Hold Ratings	Buy Ratings	Strong Buy Ratings	Rating Score
Heico	0	4	10	3	2.94
Northrop Grumman	0	8	11	1	2.65

Heico currently has a consensus price target of $379.56, suggesting a potential upside of 8.04%. Northrop Grumman has a consensus price target of $661.30, suggesting a potential upside of 17.27%. Given Northrop Grumman’s higher probable upside, analysts clearly believe Northrop Grumman is more favorable than Heico.

About Heico

HEICO Corporation, through its subsidiaries, designs, manufactures, and sells aerospace, defense, and electronic related products and services in the United States and internationally. Its Flight Support Group segment provides jet engine and aircraft component replacement parts; thermal insulation blankets and parts; renewable/reusable insulation systems; and specialty components. This segment also distributes hydraulic, pneumatic, structural, interconnect, mechanical, and electro-mechanical components for the commercial, regional, and general aviation markets; and offers repair and overhaul services for jet engine and aircraft component parts, avionics, instruments, composites, and flight surfaces of commercial aircraft, as well as for avionics and navigation systems, and other instruments utilized on military aircraft. The company's Electronic Technologies Group segment provides electro-optical infrared simulation and test equipment; electro-optical laser products; electro-optical, microwave, and other power equipment; electromagnetic and radio frequency (RF) interference shielding and suppression filters; power conversion and interface; interconnection devices; and underwater locator beacons and emergency locator transmission beacons. This segment also offers traveling wave tube amplifiers and microwave power modules; memory products and specialty semiconductors; harsh environment connectivity products and custom molded cable assemblies; RF and microwave products; communications and electronic intercept receivers and tuners; self-sealing auxiliary fuel systems; active antenna systems and airborne antennas; nuclear radiation detectors; silicone products; power amplifiers; ceramic-to-metal feedthroughs and connectors; technical surveillance countermeasures equipment; RF receivers and sources; embedded computing solutions; test sockets and adapters; and radiation assurance services. The company was incorporated in 1957 and is headquartered in Hollywood, Florida.

About Northrop Grumman

Northrop Grumman Corporation operates as an aerospace and defense technology company in the United States, Asia/Pacific, Europe, and internationally. The company’s Aeronautics Systems segment designs, develops, manufactures, integrates, and sustains aircraft systems. This segment also offers unmanned autonomous aircraft systems, including high-altitude long-endurance strategic ISR systems and vertical take-off and landing tactical ISR systems; and strategic long-range strike aircraft, tactical fighter and air dominance aircraft, and airborne battle management and command and control systems. Its Defense Systems segment designs, develops, integrates, and produces tactical weapons and missile defense solutions, and provides sustainment, modernization, and training services for manned and unmanned aircraft and electronics systems. It also offers integrated, all-domain command, and control battle management systems, precision strike weapons; high speed air-breathing and hypersonic systems; high-performance gun systems, ammunition, precision munitions and advanced fuzes; aircraft and mission systems logistics support, sustainment, operations and modernization; and warfighter training services. The company’s Mission Systems segment offers command, control, communications and computers, intelligence, surveillance, and reconnaissance systems; radar, electro-optical/infrared and acoustic sensors; electronic warfare systems; advanced communications and network systems; cyber solutions; intelligence processing systems; navigation; and maritime power, propulsion, and payload launch systems. Its Space Systems segment offers satellites, spacecraft systems, subsystems, sensors, and payloads; ground systems; missile defense systems and interceptors; launch vehicles and related propulsion systems; and strategic missiles. Northrop Grumman Corporation was founded in 1939 and is based in Falls Church, Virginia.