Northrop Grumman Outlook Downgraded

Goldman Sachs lowered its rating on U.S. military contractor Northrop Grumman Corp. to market perform from outperform. In a report, analyst Howard Rubel said the downgrade stemmed from potential dilution and distraction over a bid for Newport News Shipbuilding Inc. He said a combination between Northrop and Newport News may not produce the benefits for Northrop or the U.S. Navy that a General Dynamics Corp.-Newport News deal would. General Dynamics and Northrop have competing bids for the shipbuilder. General Dynamics agreed to buy Newport News for $2.1 billion in cash, while Northrop is offering $2.1 billion mostly in stock. At Northrop, Rubel said, "Discretionary cash flow over the next six to 18 months is likely to be modest, and we feel that valuation will be impacted by the payment of $1 billion in deferred taxes in 2002." Northrop, however, could benefit from "promising opportunities in space, systems integration and the potential for synergies associated with the Litton acquisition," Rubel said. - (Reuters)