Aerospace and defense company BWX (NYSE:BWXT) reported Q3 CY2024 results beating Wall Street’s revenue expectations , with sales up 13.9% year on year to $672 million. The company’s full-year revenue guidance of $2.7 billion at the midpoint came in 2.1% above analysts’ estimates. Its non-GAAP profit of $0.83 per share was also 7.1% above analysts’ consensus estimates.

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“Our strong third quarter performance underscores the momentum BWXT has built throughout 2024,” said Rex D. Geveden, President and CEO.

Company Overview

Contributing components and materials to the famous Manhattan Project in the 1940s, BWX (NYSE:BWXT) is a manufacturer and service provider of nuclear components and fuel for government and commercial industries.

Defense Contractors

Defense contractors typically require technical expertise and government clearance. Companies in this sector can also enjoy long-term contracts with government bodies, leading to more predictable revenues. Combined, these factors create high barriers to entry and can lead to limited competition. Lately, geopolitical tensions–whether it be Russia’s invasion of Ukraine or China’s aggression towards Taiwan–highlight the need for defense spending. On the other hand, demand for these products can ebb and flow with defense budgets and even who is president, as different administrations can have vastly different ideas of how to allocate federal funds.

Sales Growth

Reviewing a company’s long-term performance can reveal insights into its business quality. Any business can have short-term success, but a top-tier one sustains growth for years. Unfortunately, BWX’s 7.5% annualized revenue growth over the last five years was mediocre. This shows it couldn’t expand in any major way, a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. BWX’s annualized revenue growth of 10.4% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

We can better understand the company’s revenue dynamics by analyzing its most important segments, Government Operations and Commercial Operations, which are 83.3% and 16.8% of revenue. Over the last two years, BWX’s Government Operations revenue (public sector sales) averaged 11.2% year-on-year growth while its Commercial Operations revenue (private sector sales) averaged 7% growth.

This quarter, BWX reported year-on-year revenue growth of 13.9%, and its $672 million of revenue exceeded Wall Street’s estimates by 2%.

Looking ahead, sell-side analysts expect revenue to grow 1.7% over the next 12 months, a deceleration versus the last two years. This projection is underwhelming and illustrates the market believes its products and services will face some demand challenges.

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Operating Margin

BWX has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 15.8%.

Analyzing the trend in its profitability, BWX’s annual operating margin decreased by 1.7 percentage points over the last five years. Even though its margin is still high, shareholders will want to see BWX become more profitable in the future.

This quarter, BWX generated an operating profit margin of 14.4%, in line with the same quarter last year. This indicates the company’s overall cost structure has been relatively stable.

Earnings Per Share

Analyzing revenue trends tells us about a company’s historical growth, but the long-term change in its earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

BWX’s EPS grew at an unimpressive 5.2% compounded annual growth rate over the last five years, lower than its 7.5% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded.

Diving into the nuances of BWX’s earnings can give us a better understanding of its performance. As we mentioned earlier, BWX’s operating margin was flat this quarter but declined by 1.7 percentage points over the last five years. This was the most relevant factor (aside from the revenue impact) behind its lower earnings; taxes and interest expenses can also affect EPS but don’t tell us as much about a company’s fundamentals.

Like with revenue, we analyze EPS over a more recent period because it can give insight into an emerging theme or development for the business.

For BWX, its two-year annual EPS growth of 4.1% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q3, BWX reported EPS at $0.83, up from $0.67 in the same quarter last year. This print beat analysts’ estimates by 7.1%. Over the next 12 months, Wall Street expects BWX’s full-year EPS of $3.42 to shrink by 3.7%.

Key Takeaways from BWX’s Q3 Results

We were impressed by how significantly BWX blew past analysts’ revenue, EBITDA, and EPS expectations this quarter. We were also glad it raised its full-year revenue and EBITDA guidance. Overall, we think this was still a solid quarter with some key areas of upside. The stock traded up 2.1% to $122.27 immediately after reporting.

Indeed, BWX had a rock-solid quarterly earnings result, but is this stock a good investment here? We think that the latest quarter is just one piece of the longer-term business quality puzzle. Quality, when combined with valuation, can help determine if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.