Woodward, Inc.’s WWD shares reflect muted growth with only a 9.7% year-to-date (“YTD”) rise. Though this compares favorably with Aerospace -Defense Equipment industry’s growth of 2.8% and the S&P 500 composite’s decline of 5.1%, the question arises whether the stock can gain further momentum.

Price Performance

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The stock is trading above its 100-day moving average, indicating robust upward momentum and price stability. Closing at $182.49 as of yesterday’s trading session, the WWD stock is currently trading 9.5% below its 52-week high of $201.64, attained on Nov. 26, 2024. 

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Can Woodward stock continue to rally this year, driven by several tailwinds? Let us discuss the pros and cons of WWD and determine the best course of action for your portfolio.

WWD’s Aerospace Unit the Main Catalyst

Strength in Aerospace is driving top-line expansion for Woodward along with the core industrial segment. Revenues from Woodward’s Aerospace business are expected to improve in the upcoming quarters, driven by strength in the commercial aftermarket as well as higher defense activity, despite supply-chain challenges. 

In the first quarter of fiscal 2025, net sales for the segment were up 7% year over year, despite the negative impact from the Boeing work stoppage. Defense OEM and defense aftermarket sales were up 21% and 8%, respectively, year over year. Commercial aftermarket sales increased 19%, attributed to robust passenger traffic and higher legacy aircraft utilization. 

Geopolitical developments have been driving demand for defense products and the company expects strong growth across its defense portfolio in 2025, including a considerable increase in smart defense spending. For fiscal 2025, Aerospace segment revenues are anticipated to increase in the range of 6-13%, whereas segment earnings (as a percentage of revenues) are expected to be 20-21%.

Several Tailwinds in WWD’s Industrial Business

Woodward’s Industrial business segment has been gaining from solid demand for power generation and continued requirement for primary and backup power for data centers. Higher investment in gas-powered generation to support grid stability is another tailwind. Increasing demand for alternative fuels across the marine industry, as well as momentum in the global marine market brought on by higher utilization, bodes well. Within oil and gas, an encouraging investment outlook in China, the Middle East and India’s refining and petrochemical activities are other growth drivers. 

Woodward has been investing significantly in upgrading technologies to secure fresh businesses. It is spending on new manufacturing units and automation equipment to perk up efficiency as the company intends to accelerate production. At the Rockford facility, Woodward noted that the installation of advanced automation, including cobots (collaborative robots), has improved operational efficiency. In fiscal 2024, Woodward completed a $55 million, multi-year transformation of the Aerospace Maintenance, Repair and Overhaul facility in Loves Park, IL, to meet Commercial aftermarket opportunities.

Volatile China on-highway, supply-chain challenges in Aerospace and prevailing weakness over global macroeconomic conditions remain overhangs. Management continues to expect full-year revenues from China’s on-highway natural-gas trucks to be $40 million, indicating a significant decline of $175 million from fiscal 2024. Also, within oil & gas, soaring domestic production levels in the United States were not translating into upstream service growth due to low commodity pricing. Owing to these factors, Industrial segment revenues are expected to decline in the band of 7-11%.

WWD’s Healthy Capital Deployment Strategy

The company’s strong capital-allocation policy bodes well as this enables it to fund strategic initiatives like innovation and acquisitions, and boost capital returns. During fiscal 2024, WWD returned $449 million to its shareholders in the form of $58 million of dividends and $391 million of share repurchases. In the last reported quarter, Woodward returned $50 million to its shareholders in the form of $15 million of dividends and $35 million worth of share repurchases. 

WWD also hiked its quarterly dividend by 12% to 28 cents per share in February 2025.

WWD Trades at a Discount

The WWD stock is trading at a discount, with a forward 12-month Price/Earnings of 27.48X compared with the industry’s 35.93X, making it an attractive investment opportunity.

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How to Strategize Investment in the WWD Stock?

WWD’s momentum in Aerospace and core Industrial segments, along with discounted valuation and shareholder returns, makes it an attractive investment for the long term.

It currently carries a Zacks Rank #2 (Buy).

Other Stocks to Consider

Some other top-ranked stocks worth consideration from the broader aerospace sector are Spirit AeroSystems Holdings, Inc. SPR, Triumph Group, Inc. TGI and TransDigm Group Incorporated TDG, each carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

The Zacks Consensus Estimate for SPR’s 2025 EPS is pegged at 88 cents, unchanged in the past seven days. The long-term EPS growth rate for SPR is 41.7%. 

The Zacks Consensus Estimate for TGI’s fiscal 2025 earnings is pegged at 68 cents per share, unchanged in the past seven days. TGI’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, while missing once, with the average surprise being 159.4%.

The Zacks Consensus Estimate for TDG’s fiscal 2025 EPS is pegged at $37.21, unchanged in the past seven days. TDG’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, with the average surprise being 6.5%. 

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This article originally published on Zacks Investment Research (zacks.com).

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