Aerospace and defense company BWX (NYSE:BWXT) reported revenue ahead of Wall Street’s expectations in Q4 CY2024, with sales up 2.9% year on year to $746.3 million. The company’s full-year revenue guidance of $3 billion at the midpoint came in 3.3% above analysts’ estimates. Its non-GAAP profit of $0.92 per share was 13.1% above analysts’ consensus estimates.

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“We closed out the year with better-than-expected fourth quarter financial results and are poised for another strong year in 2025,” said Rex D. Geveden, president and chief executive officer.

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

A company’s long-term sales performance is one signal of its overall quality. Even a bad business can shine for one or two quarters, but a top-tier one grows for years. Over the last five years, BWX grew its sales at a mediocre 7.4% compounded annual growth rate. This was below our standard for the industrials sector and is a poor baseline 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% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

BWX also breaks out the revenue for its most important segments, Government Operations and Commercial Operations, which are 79.7% and 20.4% of revenue. Over the last two years, BWX’s Government Operations revenue (public sector sales) averaged 10.1% year-on-year growth while its Commercial Operations revenue (private sector sales) averaged 10.6% growth.

This quarter, BWX reported modest year-on-year revenue growth of 2.9% but beat Wall Street’s estimates by 2.4%.

Looking ahead, sell-side analysts expect revenue to grow 8.8% over the next 12 months, similar to its two-year rate. Still, this projection is above average for the sector and suggests the market is factoring in some success for its newer products and services.

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Operating Margin

Operating margin is an important measure of profitability as it shows the portion of revenue left after accounting for all core expenses – everything from the cost of goods sold to advertising and wages. It’s also useful for comparing profitability across companies with different levels of debt and tax rates because it excludes interest and taxes.

BWX has been an efficient company over the last five years. It was one of the more profitable businesses in the industrials sector, boasting an average operating margin of 15.6%.

Analyzing the trend in its profitability, BWX’s operating margin decreased by 2.8 percentage points over the last five years. This raises an eyebrow about the company’s expense base because its revenue growth should have given it leverage on its fixed costs, resulting in better economies of scale and profitability.

In Q4, BWX generated an operating profit margin of 12.4%, down 4.6 percentage points year on year. This contraction shows it was recently less efficient because its expenses grew faster than its revenue.

Earnings Per Share

Revenue trends explain a company’s historical growth, but the long-term change in 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 4.9% compounded annual growth rate over the last five years, lower than its 7.4% annualized revenue growth. This tells us the company became less profitable on a per-share basis as it expanded due to non-fundamental factors such as interest expenses and taxes.

We can take a deeper look into BWX’s earnings to better understand the drivers of its performance. As we mentioned earlier, BWX’s operating margin declined by 2.8 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 shorter period to see if we are missing a change in the business.

For BWX, its two-year annual EPS growth of 3.2% was lower than its five-year trend. We hope its growth can accelerate in the future.

In Q4, BWX reported EPS at $0.92, down from $1.01 in the same quarter last year. Despite falling year on year, this print easily cleared analysts’ estimates. Over the next 12 months, Wall Street expects BWX’s full-year EPS of $3.33 to grow 3.2%.

Key Takeaways from BWX’s Q4 Results

We were impressed by BWX’s optimistic full-year revenue guidance, which blew past analysts’ expectations. We were also glad its Commercial Operations revenue topped Wall Street’s estimates to lead to consolidated revenue and EPS beats. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 4.7% to $104.49 immediately following the results.

BWX had an encouraging quarter, but one earnings result doesn’t necessarily make the stock a buy. Let’s see if this is a good investment. The latest quarter does matter, but not nearly as much as longer-term fundamentals and valuation, when deciding if the stock is a buy. We cover that in our actionable full research report which you can read here, it’s free.