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JPMorgan downgrades Northrop Grumman to neutral, cites stock’s recent outperformance

Investors should hold off on buying Northrop Grumman in the near term after its strong year-to-date outperformance, JPMorgan says. Analyst Seth Seifman downgraded the defense and aerospace stock to neutral, highlighting the stock’s nearly 30% rally this year among his reasons for a downgrade. “We believe the company remains well positioned to benefit from its embedded growth on B-21, GBSD, and Space programs, but the valuation has elevated to all-time highs and above peers,” he wrote in a note to clients Friday. Northrop Grumman shares are trading at 16.5 times forward earnings relative to peers L3Harris and Lockheed Martin trading under 13 times. While the defense sector looks relatively attractive given the current geopolitical and macro environment, Seifman does expect sentiment to quickly shift when investors become more optimistic. Despite these near-term concerns, the defense contractor retains strong cash flows and offers an attractive long-term growth profile, Seifman said. “Strategically, we think Northrop has a strong sense of what it is and where it’s going, while on capital deployment, investors appreciate NOC’s predictable cash return, even if buying stock back right now is less compelling,” he wrote. The bank’s $490 price target suggests a modest 2% decline from Thursday’s close price. — CNBC’s Michael Bloom contributed reporting

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