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About Woodward
Headquartered in Fort Collins, Colorado, Woodward Incorporated is, at its core, an industrial company that happens to have a few areas in which it specializes in, acting as a major supplier to industries such as aviation, oil and gas, public transportation and utilities.
Founded in 1870 by Amos Woodward, his first product ever was a faster and more efficient water wheel governor.
Amos literally reinvented the wheel.
Well, kind of.
Anyway, over the last 154 years, Woodward has still seemingly remained to be a company that focuses on designing and manufacturing products that give its end users a better, safer and more efficient experience, for instance, as within the confines of the aviation industry, the company is involved in putting together mission critical aerospace systems that are used on all sorts and different types of airplanes and rotorcraft (helicopters), such as fuel pumps and nozzles, actuation systems, which are essentially the crucial middleman between a pilot’s movement of a steering column in the cockpit to the mechanisms that actually move the aircraft, such as the ailerons, rudders and flaps performing the task the pilot is de facto requesting, in a timely and safe manner, along with supplemental motion control systems and many other components that Woodward is largely responsible for supplying to its clients, such as Boeing, RTX (formerly known as Raytheon), General Electric and plenty of others within the sector.
And that is just within the aviation industry alone.
Right off the bat, in more respects than one, this company reminds me a great deal of one that I analyzed earlier this month, yet another industrial company with a markedly distinct focus on the railroad industry, Wabtec.
In addition to both being long-time industrial companies, they both seem pretty boring, uninteresting, but consistent and more than necessary companies, as without either of them both transportation and the world in general would be much less safe, structured, orderly and comfortable.
With that, I will also venture an initial guess and say that I imagine Woodward is overall resistant to recessionary pressures, as spending both from the private sector but also stemming from federal infrastructure spend (or taxpayer funds, let’s get real) is going to be a natural, long-term boost for a company such as this one, and also in a more bleak sense, the company is going to also benefit from heightened defense spending given all of the continued geopolitical turmoil and uncertainties enveloping the world, and while I am never going to be one to root for this just in order for a company’s stock price to go up, it has been proven time and time again that defense-related companies and their share prices perform quite well during times such as these, and this can also be proven by the stock’s (NASDAQ: WWD) appreciation of almost 60% over the last twelve months.
The last thing I will say on this matter is that spending on clean energy is also going to unequivocally continue thriving and yet another pair of Woodward’s primary business categories lie within utilities and the oil and gas space, and as more demand for energy (clean or not) rises, a company such as this one has got to be involved in designing, manufacturing and selling better bits of infrastructure for the long haul.
Hopefully this synopsis on Woodward Incorporated helped out a little bit, but let’s really dive into what I know basically all of you came for, the financial analysis portions and my ultimate verdict as it relates to Woodward and its stock price.
Woodward’s stock financials
Trading at a share price of $175.97 with an accompanied market capitalization of $10.76 billion, Woodward also has a present price-to-earnings (P/E) ratio of 30.98 and shells out an annual dividend of exactly $1.00 per share, rewarding shareholders a quarter each quarter.
Yet another similarity between the aforementioned fellow industrial Wabtec and Woodward (besides the whole “W” as the first letter thing, too) is the fact that each have, at the time of this publication, just about the same price-to-earnings ratios, both trading at relatively premiums when considering their true, intrinsic, sum-of-the-parts values. With that, this won’t deter me from continuing to dig into this company further, because maybe its revenues are growing at a rapid enough annual rate that would adequately justify paying a modest premium for a slice of the Woodward ownership pie, but at the same time, I will believe it when I see it.
As for the dividend, I’ll just say that big, boring industrial companies tend to have little to no issues in terms of generating cash from their operations (which I will still trust but generally verify later within this stock analysis article, don’t you worry), and I highly doubt Woodward is any exception.
As it relates to the company’s balance sheet, Woodward’s executive managers are at the helm of just about $4 billion in terms of total assets as well as $1.9 billion and some change in terms of total liabilities, which is a pretty great balance sheet breakdown, if I do not say so myself, with the company in essence having a 2:1 total asset:total liability coverage ratio, meaning that it could theoretically double the amount of outstanding debts and liabilities it currently maintains and still just be breaking even if its total assets also happened to not change in amount.
This is great coverage and like its other products (at least I assume) is well crafted, as the company has afforded itself the ability to tack on some more debt in order to grow internally or perhaps through non-organic means such as through acquiring smaller and leaner industrial companies that could help grow its revenues and portfolio of intellectual property (IP).
Onto the company’s income statement, Woodward’s total annual revenues since 2019 have been solidly boring too, with each year its revenues placed somewhere in the $2 billion zone, solidifying that this company operates in a rather stable, mature industry and the firm itself is definitively stable and mature as well, also thankfully confirming my initial hunch(es) to be true in the realm of the firm being categorically resistant to recessionary pressures, at least in a material sense, or in other words, it there actually was any sort of recent softening in revenue, it was in the order of a few hundred millions, not billions, which for such a large company, is a great sign.
Regarding the company’s cash flow statement, Woodward’s corresponding total cash from operations have shown their fair share of range during the same 2019-2023 timeframe, ranging from a relative low of $194 million (2022) and $465 million, as reported during the year prior, in 2021, averaging out over the last handful of years to about $300 and something million, which is somewhat indicative of the company have a small net profit margin, at least in terms of referencing its cumulative cash from operations and how they measure up against its previously stated revenue figures.
Woodward’s stock fundamentals
On the same vein of the company’s net profit margin, there’s seemingly more good news than bad news, as when pinned up against some of its core competitors, Woodward’s net profit margin is quite competitive itself, touting a figure of 11.09% to some of its competitor’s averages of 12.78% and 3.46%, in relation to the Curtiss-Wright Corporation and Elbit Systems, respectively.
Sure, Woodward’s net profit margin still appeared to be a little small at first glance when just glancing over its most recent total cash from operations numbers, and on the most objective, macro basis, it is, however, an added layer of context served us well and showed me that in relation to its top competitors, Woodward is pulling its weight in profit quite handsomely.
Should you buy Woodward stock?
Let’s just jump straight into the facts.
Woodward is a seasoned industrial company with some great core businesses, a moderately overvalued stock, consistent recent annual revenues, a great balance sheet, a more than solid net profit margin (again, primarily with respect to the competition), an apparently recession resistant bunch of operations, a fine annual dividend and from where I stand, little to absolutely no reason to discontinue its proven pattern of consistency.
Nevertheless, in the interest of keeping my street cred up and sticking to being an utmost objective potential investor, I personally deem it most sensible to lend this company’s stock (NASDAQ: WWD) a “hold” rating given its present valuation and recent notable share price appreciation.
DISCLAIMER: This analysis of the aforementioned stock security is in no way to be construed, understood, or seen as formal, professional, or any other form of investment advice. We are simply expressing our opinions regarding a publicly traded entity.
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