WWD: Recent Upgrade Will Drive Long-Term Confidence And Margin Expansion

Key Takeaways

• Strong positioning in cleaner, high-tech aerospace and industrial solutions drives long-term growth and recurring revenue streams amid global decarbonization trends.
  
• Strategic investments in automation, innovation, and operational efficiency are expected to boost profitability and support stable earnings expansion.
  
• High execution risk from heavy capital investments, technological disruption, and volatile end-markets could pressure margins, threaten legacy revenues, and challenge long-term stability.

Catalysts

Designs, manufactures, and services control solutions for the aerospace and industrial markets worldwide.

• Woodward's recent wins in electric and hybrid aircraft propulsion components (A350 spoiler actuator program, Safran electromechanical actuation acquisition) position it for outsize long-term growth as the aerospace industry shifts toward cleaner and more energy-efficient platforms, indicating higher future revenue and recurring aftermarket streams.
  
• The global push for decarbonization and rising energy efficiency standards is accelerating demand for high-tech propulsion, actuation, and energy management systems in both aviation and industrial markets, supporting Woodward's revenue growth and expanding its addressable market over the coming years.
  
• Increasing digitalization and automation in industrial and aerospace manufacturing is expected to drive sustained demand for Woodward's advanced motion control and actuator solutions, which-supported by its ongoing investments in automation and proprietary technologies-should enhance net margins and long-term earnings power.
  
• Growing investments in global commercial and defense aerospace, alongside extended lifecycles and modernization of aircraft fleets, will amplify demand for Woodward's OEM and aftermarket solutions, creating more stable and predictable recurring revenues.
  
• Strategic capital allocation toward next-generation manufacturing capabilities, vertical integration, and automation is set to improve operational efficiency and cost structure, which, combined with pricing power from value-added innovation, is likely to drive net margin expansion in the medium to long term.

Woodward Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Woodward's revenue will grow by 6.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 11.3% today to 13.6% in 3 years time.
• Analysts expect earnings to reach $561.5 million (and earnings per share of $9.23) by about September 2028, up from $387.8 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 39.5x on those 2028 earnings, up from 36.7x today. This future PE is greater than the current PE for the US Aerospace & Defense industry at 34.4x.
• Analysts expect the number of shares outstanding to grow by 1.41% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.75%, as per the Simply Wall St company report.

Woodward Future Earnings Per Share Growth

Risks

• Heavy, concentrated investments in new manufacturing facilities (e.g., several hundred million dollars over 2026–2027 for the A350 spoiler) and integration of recent acquisitions increase capital expenditure and execution risk, which could pressure free cash flow and net margins in the medium term if returns do not materialize as anticipated.
  
• Dependence on legacy aerospace platforms and aftermarket services (e.g., CFM56, regional jets) means that a rapid airline transition to newer, more efficient, or alternative propulsion technologies-or accelerated fleet retirements-could lead to earlier-than-expected declines in high-margin revenue streams and dampen long-term earnings growth.
  
• Secular industry shifts toward electric and hybrid propulsion, and ongoing OEM efforts toward vertical integration, threaten Woodward's traditional product lines and role as a specialized supplier; failure to invest/invent at the pace of technological change may result in loss of market share and downstream revenue declines.
  
• Exposure to cyclical and volatile end-markets-such as defense (where long-term demand visibility beyond 2026 is unclear), marine, and industrial sectors sensitive to global trade dynamics (notably China)-poses risks to revenue stability, especially amid geopolitical uncertainty and fluctuating government budgets.
  
• Ongoing supply chain disruptions, working capital build-up, and inventory management issues (driven by both customer volatility and supplier performance) have already resulted in lower-than-expected free cash flow, raising the possibility of further margin and earnings compression should these conditions persist or worsen.

Valuation

• The analysts have a consensus price target of $285.875 for Woodward based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $335.0, and the most bearish reporting a price target of just $245.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $4.1 billion, earnings will come to $561.5 million, and it would be trading on a PE ratio of 39.5x, assuming you use a discount rate of 7.7%.
• Given the current share price of $237.33, the analyst price target of $285.88 is 17.0% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.