Why Northrop Grumman Stock Soared Today

"$1.5 trillion" -- it's not just for SpaceX anymore.

Last month, SpaceX floated plans for a $1.5 trillion IPO. Now, President Trump wants to spend a similar sum on defense: "For the Good of our Country ... our Military Budget for the year 2027 should not be $1 Trillion Dollars, rather $1.5 Trillion Dollars ... This will allow us to build the 'Dream Military' that we have long been entitled to, and, more importantly, that will keep us SAFE and SECURE."

Defense stocks in general are surging, and Northrop Grumman (NYSE: NOC) stock in particular is up 6.5% as of 10:35 a.m. ET.

Image source: Getty Images.

Details, please

The President didn't provide much detail on where he would spend $1.5 trillion, or which companies will receive it. One thing he made crystal clear:

Once Northrop Grumman and its peers get the money, they must invest it in boosting weapons production and maintenance -- not just hand it to executives in the form of fatter paychecks, or funnel it to shareholders via dividends and stock buybacks.

In a separate post, President Trump blasted defense companies for paying "exorbitant and unjustifiable" executive compensation, insisting defense CEOs shouldn't earn more than $5 million per year. He promised to "not permit Dividends or Stock Buybacks for Defense Companies" until they improve their weapons, production rates, and maintenance practices.

Is Northrop Grumman stock a buy?

What's this mean for investors? It's a double-edged sword. Assuming Congress approves the funds, Northrop can expect a big boost in annual revenue. It will need to make significant capital investments, however, hurting profit margins earned on that revenue.

Northrop's revenue has grown slowly the past five years, averaging 3% annually, while profit margins soared to nearly 10%. Expect both those numbers to change if the President gets his way.

Rich Smith has no position in any of the stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. The Motley Fool has a disclosure policy.