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Woodward (WWD) Gains 55% in the Past Year: Will the Rally Last?
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Woodward’s (WWD - Free Report) top-line performance is benefiting from strong end-market demand across most of the verticals coupled with operational execution.
Woodward is a leading designer, manufacturer and service provider of energy control and optimization solutions. The company provides a wide array of products for fuel, combustion, fluid, actuation and electronic applications, which serve the commercial aerospace, business jet, military and energy markets.
Solid financial performance has also led to a good run on the trading front. The company’s shares have gained 55.4% in the past year compared with 27.6% and 17.6% growth of the S&P 500 Composite and the sub-industry, respectively.
With healthy fundamentals and strong growth opportunities, this Zacks Rank #2 (Buy) stock appears to be a solid investment option at the moment.
Image Source: Zacks Investment Research
Apart from a favorable rank, WWD has a VGM Score of B. Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 (Strong Buy) or #2 and a VGM Score of A or B offer solid investment opportunities.
WWD has delivered an earnings surprise of 27.2%, on average, in the trailing four quarters.
Woodward’s earnings per share are expected to climb 25.9% and 9.3% from the year-ago levels to $5.30 and $5.79 in fiscal 2024 and 2025, respectively. The Zacks Consensus Estimate for fiscal 2024 and 2025 earnings has improved 2.7% and 0.7%, respectively, in the past 60 days.
Revenues for fiscal 2024 and 2025 are forecast to rise 11.3% and 5.2% to $3.24 billion and $3.41 billion, respectively.
WWD’s long-term earnings growth rate is pegged at 15.6%.
Growth Catalysts
Apart from strong end-market demand, price realization, favorable product mix, and productivity and efficiency improvements are driving overall performance.
Woodward’s Industrial business segment is gaining from solid demand for power generation, especially in Asia and Middle East, and continued requirement for backup power for data centers. In the last reported quarter, segmental net sales totaled $326 million, up 46% year over year due to higher demand across all markets, especially on-highway natural gas truck business in China.
Higher demand for alternative fuels across the marine industry as well as momentum in the global marine market brought on by higher utilization and rising shipbuilding rates are other tailwinds. For fiscal 2024, Industrial segment revenues are expected to increase in the band of 8-10% compared with previous guided range of 4-6%.
Strength in commercial markets as well as higher defense activity is likely to drive revenues from Woodward’s Aerospace business in the upcoming quarters. Management highlighted that geopolitical developments and increased government spending proposals implied potential higher procurement and research & development spend. This will likely bode well for the company.
Defense OEM sales are improving due to higher ground vehicles and guided weapons sales. Defense aftermarket sales are gaining from supply-chain stabilization and higher output. For fiscal 2024, Aerospace sales growth is expected to be between 10% and 14%.
WWD’s capital allocation strategy to enhance long-term shareholders’ value is noteworthy. It repurchased shares worth $126 million in fiscal 2023. The company’s board also approved a new three-year stock repurchase program in January 2024, allowing it to buy back up to $600 million worth of its stock through open market or private transactions.
This program replaces the prior two-year $800 million repurchase program, initiated in January 2022, during which WWD repurchased around $572 million worth of stock. The company also hiked quarterly dividend by about 14%.
Headwinds Remain
Volatile China on-highway natural gas truck market, global macroeconomic weakness and rising costs are concerns. Though sales for on-highway natural gas trucks significantly increased in the fiscal first quarter, management does not expect higher sales to continue in fiscal second quarter as demand trends indicate return to earlier peak levels of $50 million.
Woodward also expects pressure on margin performance for its China on-highway natural gas truck business due to reduced volume leverage and increasing material costs (which include spot buys and expedited freight).
An anticipated shift in mix and cost increases are likely to dampen overall margin performance for the remaining fiscal year. WWD continues to expect material cost inflation from supply base throughout calendar year 2024. Also, with the recent pause by the U.S. government of further LNG export approvals has made investment scenario of LNG development market uncertain.
The Zacks Consensus Estimate for SNPS’ fiscal 2024 EPS is pegged at $13.36. The long-term earnings growth rate is 17.5%. SNPS’ earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 4.1%. Shares of SNPS have soared 48.3% in the past year.
The Zacks Consensus Estimate for PEGA’s 2024 EPS has increased 19.4% in the past 60 days to $2.77. Pegasystems’ earnings beat the Zacks Consensus Estimate in two of the last four quarters, while missed the same in the remaining quarters. The average earnings surprise is 1063.8%. Shares of PEGA have surged 30.2% in the past year.
The Zacks Consensus Estimate for Microsoft’s fiscal 2024 EPS is pegged at $11.63, indicating growth of 18.6% from the year-ago levels. MSFT’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 8.8%. The long-term earnings growth rate is 16.2%. Shares of MSFT have rallied 47.8% in the past year.
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Woodward (WWD) Gains 55% in the Past Year: Will the Rally Last?
Woodward’s (WWD - Free Report) top-line performance is benefiting from strong end-market demand across most of the verticals coupled with operational execution.
Woodward is a leading designer, manufacturer and service provider of energy control and optimization solutions. The company provides a wide array of products for fuel, combustion, fluid, actuation and electronic applications, which serve the commercial aerospace, business jet, military and energy markets.
Solid financial performance has also led to a good run on the trading front. The company’s shares have gained 55.4% in the past year compared with 27.6% and 17.6% growth of the S&P 500 Composite and the sub-industry, respectively.
With healthy fundamentals and strong growth opportunities, this Zacks Rank #2 (Buy) stock appears to be a solid investment option at the moment.
Image Source: Zacks Investment Research
Apart from a favorable rank, WWD has a VGM Score of B. Per Zacks’ proprietary methodology, stocks with a combination of a Zacks Rank #1 (Strong Buy) or #2 and a VGM Score of A or B offer solid investment opportunities.
WWD has delivered an earnings surprise of 27.2%, on average, in the trailing four quarters.
Woodward’s earnings per share are expected to climb 25.9% and 9.3% from the year-ago levels to $5.30 and $5.79 in fiscal 2024 and 2025, respectively. The Zacks Consensus Estimate for fiscal 2024 and 2025 earnings has improved 2.7% and 0.7%, respectively, in the past 60 days.
Revenues for fiscal 2024 and 2025 are forecast to rise 11.3% and 5.2% to $3.24 billion and $3.41 billion, respectively.
WWD’s long-term earnings growth rate is pegged at 15.6%.
Growth Catalysts
Apart from strong end-market demand, price realization, favorable product mix, and productivity and efficiency improvements are driving overall performance.
Woodward’s Industrial business segment is gaining from solid demand for power generation, especially in Asia and Middle East, and continued requirement for backup power for data centers. In the last reported quarter, segmental net sales totaled $326 million, up 46% year over year due to higher demand across all markets, especially on-highway natural gas truck business in China.
Higher demand for alternative fuels across the marine industry as well as momentum in the global marine market brought on by higher utilization and rising shipbuilding rates are other tailwinds. For fiscal 2024, Industrial segment revenues are expected to increase in the band of 8-10% compared with previous guided range of 4-6%.
Strength in commercial markets as well as higher defense activity is likely to drive revenues from Woodward’s Aerospace business in the upcoming quarters. Management highlighted that geopolitical developments and increased government spending proposals implied potential higher procurement and research & development spend. This will likely bode well for the company.
Defense OEM sales are improving due to higher ground vehicles and guided weapons sales. Defense aftermarket sales are gaining from supply-chain stabilization and higher output. For fiscal 2024, Aerospace sales growth is expected to be between 10% and 14%.
WWD’s capital allocation strategy to enhance long-term shareholders’ value is noteworthy. It repurchased shares worth $126 million in fiscal 2023. The company’s board also approved a new three-year stock repurchase program in January 2024, allowing it to buy back up to $600 million worth of its stock through open market or private transactions.
This program replaces the prior two-year $800 million repurchase program, initiated in January 2022, during which WWD repurchased around $572 million worth of stock. The company also hiked quarterly dividend by about 14%.
Headwinds Remain
Volatile China on-highway natural gas truck market, global macroeconomic weakness and rising costs are concerns. Though sales for on-highway natural gas trucks significantly increased in the fiscal first quarter, management does not expect higher sales to continue in fiscal second quarter as demand trends indicate return to earlier peak levels of $50 million.
Woodward also expects pressure on margin performance for its China on-highway natural gas truck business due to reduced volume leverage and increasing material costs (which include spot buys and expedited freight).
An anticipated shift in mix and cost increases are likely to dampen overall margin performance for the remaining fiscal year. WWD continues to expect material cost inflation from supply base throughout calendar year 2024. Also, with the recent pause by the U.S. government of further LNG export approvals has made investment scenario of LNG development market uncertain.
Other Key Picks
Some other top-ranked stocks worth consideration in the broader technology space are Synopsys (SNPS - Free Report) , Pegasystems Inc (PEGA - Free Report) and Microsoft (MSFT - Free Report) . While SNPS sports a Zacks Rank #1, PEGA and MSFT carry a Zacks Rank of 2 each at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for SNPS’ fiscal 2024 EPS is pegged at $13.36. The long-term earnings growth rate is 17.5%. SNPS’ earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 4.1%. Shares of SNPS have soared 48.3% in the past year.
The Zacks Consensus Estimate for PEGA’s 2024 EPS has increased 19.4% in the past 60 days to $2.77. Pegasystems’ earnings beat the Zacks Consensus Estimate in two of the last four quarters, while missed the same in the remaining quarters. The average earnings surprise is 1063.8%. Shares of PEGA have surged 30.2% in the past year.
The Zacks Consensus Estimate for Microsoft’s fiscal 2024 EPS is pegged at $11.63, indicating growth of 18.6% from the year-ago levels. MSFT’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 8.8%. The long-term earnings growth rate is 16.2%. Shares of MSFT have rallied 47.8% in the past year.