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Woodward (WWD) Spikes 36.1% YTD: Will the Uptrend Persist?

Woodward WWD is witnessing strong momentum, with shares having rallied 36.1% year to date compared with 19.6% and 19.4% growth of the sub-industry and S&P Composite, respectively.

With healthy fundamentals and strong growth opportunities, this Zacks Rank #2 (Buy) stock appears to be a solid investment option at the moment.

Apart from a favorable rank, WWD has a Growth Score of A. 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.

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.

Zacks Investment Research
Zacks Investment Research

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Factors Driving Performance

Woodward’s sales performance is benefiting from strong end market demand across most of the verticals. Also, the strategic investments, made to bolster supply chain, are other tailwinds. Price realization, favorable product mix along with productivity and efficiency improvements is driving bottom line improvement.

The company recently reported impressive fourth-quarter fiscal 2023 results, with adjusted net earnings of $1.33 per share, beating the Zacks Consensus Estimate by 4.7%. In the year-ago quarter, WWD reported adjusted net earnings of 84 cents. Quarterly net sales moved up 21% year over year to $777 million. Improved sales in the Aerospace and Industrial segments resulted in this uptick.

Higher commercial OEM and commercial aftermarket sales due to improving passenger traffic and fleet utilization are driving steady momentum in the Aerospace segment. In the last reported quarter, sales were up 11% year over year to $455 million.

The Aerospace segment is likely to benefit from strength in commercial markets as well as higher defense activity. For fiscal 2024, management expects Aerospace sales growth to be between 10% and 14%.

The Industrial segment is gaining from solid demand for power generation, especially in Asia, and continued requirement for backup power for data centers. In the last reported quarter, segmental net sales totaled $322 million, up 39% from the prior-year quarter due to higher volumes across all markets.

Increasing investment in LNG infrastructure development and higher demand for alternative fuels across the marine industry are positives. The segment is also likely to be aided by momentum in the global marine market brought on by higher utilization and rising shipbuilding rates. For fiscal 2024, management expects Industrial segment’s sales growth to be between 4% and 6%.

The company’s capital allocation strategy to enhance long-term shareholders’ value is noteworthy. Woodward repurchased shares worth $126 million in fiscal 2023. In January 2022, WWD authorized a new $800 million two-year stock repurchase program, reinforcing its financial position and positive outlook. The company has $228 million remaining under its share repurchase authorization.

Few Headwinds Persist

Continued softness in defense OEM sales due to lower guided weapons sales is a major headwind. Low visibility into the China on-highway natural gas truck market along with global macroeconomic weakness, forex volatility and rising costs are added concerns.

Inflationary pressure and higher annual incentive compensation are weighing down its bottom-line performance.

A Look at Estimates

Woodward’s earnings per share are expected to climb 10.2% and 11.1% on a year-over-year basis to $4.64 and $5.15 in fiscal 2024 and 2025, respectively.  The Zacks Consensus Estimate for 2023 and 2024 earnings has improved 2.7% and 17%, respectively, in the past 60 days.

Revenues for fiscal 2024 and 2025 are forecast to rise 9.8% and 1.1% to $3.2 billion and $3.24 billion, respectively.

Other Stocks to Consider

Some other top-ranked stocks worth consideration in the broader technology space are Adobe ADBE, Synopsys SNPS and Watts Water Technologies WTS, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

The Zacks Consensus Estimate for Adobe’s fiscal 2023 EPS has increased by 0.1% in the past 60 days to $15.93. ADBE’s long-term earnings growth rate is 13.5%.

Adobe’s earnings beat the Zacks Consensus Estimate in each of the last four quarters, the average surprise being 3.3%. Shares of ADBE have surged 81.4% in the past year.

The Zacks Consensus Estimate for Synopsys’ fiscal 2024 EPS has remained flat in the past 30 days at $12.52. SNPS’ long-term earnings growth rate is 16.7%. Shares of SNPS have gained 61.7% in the past year.

The Zacks Consensus Estimate for Watts Water Technologies 2023 EPS has improved 2.8% in the past 60 days to $8.00.

WTS’ earnings outpaced the Zacks Consensus Estimate in each of the last four quarters, the average earnings surprise being 11.8%. Shares of WTS have surged 24.2% in the past year.

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Woodward, Inc. (WWD) : Free Stock Analysis Report

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