Ultra Energy Integration And Defense Expansion Will Shape Future Success

Key Takeaways

• Curtiss-Wright's growth strategy focuses on operational excellence and synergies, driving operating margin expansion and boosting revenue significantly.
  
• Investments in R&D and strong backlogs position the company for long-term growth, particularly in defense and SMR technologies.
  
• Curtiss-Wright's focus on acquisitions and geopolitical factors could lead to integration challenges and impact financial performance due to margin dilution and revenue instability.

Catalysts

Provides engineered products, solutions, and services mainly to aerospace and defense, commercial power, process, and industrial markets worldwide.

• Curtiss-Wright's pivot to growth strategy, which focuses on operational excellence, is expected to drive operating margin expansion in 2025 by 40 to 60 basis points, benefiting earnings as a result.
  
• The integration of Ultra Energy is anticipated to contribute to high single-digit revenue growth and aims to achieve low double-digit operating margins by leveraging synergies and expanding presence in SMR technologies, impacting both revenue and margins positively.
  
• Curtiss-Wright plans continued investments in research and development, projected to exceed sales growth, which is expected to drive organic revenue growth and position it for future technological advancements.
  
• The growth in direct foreign military sales, anticipated at low double digits due to increased global defense spending, is expected to boost revenue, particularly in Curtiss-Wright's Defense Electronics and Naval & Power segments.
  
• The company's strong backlog in its order book, up 20% year-over-year, is a catalyst for future revenue growth, providing confidence in long-term growth prospects, especially in the A&D and commercial markets.

Curtiss-Wright Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Curtiss-Wright's revenue will grow by 6.6% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.4% today to 15.0% in 3 years time.
• Analysts expect earnings to reach $583.3 million (and earnings per share of $15.64) by about August 2028, up from $429.8 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 36.7x on those 2028 earnings, down from 44.7x today. This future PE is greater than the current PE for the US Aerospace & Defense industry at 36.3x.
• Analysts expect the number of shares outstanding to decline by 1.59% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.73%, as per the Simply Wall St company report.

Curtiss-Wright Future Earnings Per Share Growth

Risks

• Curtiss-Wright's reliance on acquisitions, such as Ultra Energy, could lead to integration risks and potential short-term dilution in margins, impacting near-term profitability.
  
• The Naval & Power segment's reliance on material receipts and the timing of naval program revenues could lead to fluctuations in quarterly financial performance, affecting revenue stability.
  
• Risks related to geopolitical shifts, like the introduction of tariffs, could increase costs or disrupt supply chains, potentially impacting operating margins negatively.
  
• Uncertainties in commercial nuclear projects timelines and regulatory changes could delay expected order flows and revenue growth.
  
• The ongoing global defense spending shifts could result in variability in contract wins and execution risks, influencing their defense electronics revenue outlook.

Valuation

• The analysts have a consensus price target of $488.833 for Curtiss-Wright 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 $570.0, and the most bearish reporting a price target of just $338.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $3.9 billion, earnings will come to $583.3 million, and it would be trading on a PE ratio of 36.7x, assuming you use a discount rate of 7.7%.
• Given the current share price of $509.32, the analyst price target of $488.83 is 4.2% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
• 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.