At today's price, Northrop Grumman's stock is pricing in roughly 9% annual free-cash-flow growth for the next ten years, at a 9% discount rate. Over the past five years, the company's actual free-cash-flow growth averaged 11.3% a year.
At its current price, NOC implies ~9% annual free-cash-flow growth for the next 10 years, discounted at 9%.
Northrop's actual 5-year free-cash-flow growth has averaged 11.3% a year.
Required growth vs. historical growth
Required growth from the reverse DCF below. Historical CAGRs calculated directly from 10-K filings for fiscal 2021–2025.
Sensitivity: what if the discount rate moves?
| WACC | Required annual growth |
|---|---|
| 8% | 6.6% |
| 9% (base case) | 9.0% |
| 10% | 11.1% |
| 12% | 15.0% |
At a lower discount rate (8%), the market's ask looks below Northrop's actual track record; at a higher one (12%), it looks well above it. In the standard 9–10% range typically used for large, stable defense primes, the read stays "roughly in line with the past."
What would move this number
- Using a 3-year average FCF ($2,676M) instead of the single 2025 figure ($3,307M) pushes the required growth rate from 9.0% up to roughly 15%, since 2025's actual FCF sits 23.6% above that average.
- Assuming a more conservative 12% discount rate pushes the required growth rate to 15.0% — more than 30% above the historical 11.3% FCF CAGR, which would shift the verdict from "in line" to "market expects meaningfully more than the past."
- Changing the terminal growth rate (2.5%) or the projection window (10 years) would shift the result further — this analysis holds both fixed.
Show your work
Five inputs, sources, model assumptions, and the calculation
- Share price$518.95 — stockanalysis.com, Sept. 10, 2026 close
- Shares outstanding142.06M — stockanalysis.com, Sept. 10, 2026; consistent with 141,997,194 shares reported in 10-K FY2025, p.25 as of Dec. 31, 2025
- Market cap$73,720M — price × shares (calculated)
- Net debt$11,293M — total long-term debt $15,696M (10-K FY2025, p.68) − cash & equivalents $4,403M (p.49)
- Free cash flow (base)$3,307M — 10-K FY2025: operating cash flow $4,757M − capex $1,450M
- Discount rate (WACC)9% base case; large stable defense-prime classification
FCF normalization check: 2025's FCF of $3,307M is 23.6% above the 2023–2025 three-year average of $2,676M, inside our ±40% threshold, so no adjustment was applied to the base case (the 3-year-average alternative is shown above in "What would move this number").
Model: two-stage reverse DCF. Free cash flow grows at rate g (the value being solved for) for 10 years, then at a 2.5% terminal rate thereafter. Target enterprise value = market cap + net debt = $73,720M + $11,293M = $85,020M. We solve by bisection for the value of g that makes the present value of those cash flows equal that target.
EV = Σ(t=1..10) FCF₀×(1+g)ᵗ/(1+WACC)ᵗ + [FCF₀×(1+g)¹⁰×1.025/(WACC−0.025)]/(1+WACC)¹⁰, solved for g by bisection. FCF 5-yr CAGR = ($3,307M ÷ $2,152M)^(1/4) − 1 ≈ 11.3%. Revenue 5-yr CAGR = ($41,954M ÷ $35,667M)^(1/4) − 1 ≈ 4.1%.
The fine print
- Change the discount rate, the projection window, the terminal growth rate, or how FCF is normalized, and the answer moves.
- A reverse DCF shows what the market currently expects — it does not say what the stock is "worth."
- Whether 9% annual FCF growth is realistic depends on program-level cost risk (B-21, Sentinel) and the U.S. defense-budget cycle — not on the math itself.
- Any investment decision, and its outcome, is your own responsibility.
How this number is built, and how banks, REITs, and negative cash flow are handled: see our methodology.
Frequently asked questions
What growth rate does NOC's stock price assume?
At its current price, Northrop Grumman is pricing in roughly 9% annual free-cash-flow growth for the next ten years, discounted at a 9% rate.
How does that compare to Northrop's actual growth?
Northrop's actual free-cash-flow growth averaged 11.3% a year over the past five years — modestly above the roughly 9% the current price requires, putting the market's expectation roughly in line with its recent track record.
What share price was used for this analysis?
This analysis used $518.95, Northrop Grumman's closing price on Sept. 10, 2026.