Woodward: Delivering Critical Components for the Aerospace Boom

Key Points

• Woodward manufactures critical control systems and components for the aerospace and industry industries, serving customers like Raytheon, Boeing, Airbus, Caterpillar, and Baker Hughes.
• The company generated record 2024 revenue exceeding $3 billion, driven by robust demand in the aerospace segment partially offset by softness in the oil and gas sector.
• Woodward guided a flat full year 2025, which may have been the reason for the sell-the-news reaction on solid Q4 2024 top and bottom line beats. 

Woodward Inc. NASDAQ: WWD manufactures critical control systems and components for the commercial aviation, industrial, and defense industries. Modern commercial passenger airliners can contain up to five million components, while military aircraft can have up to two million. This aerospace leader supplies essential components, from engine and power systems to sensors and missile guidance, ensuring consistent, non-disrupted performance.

Some of Woodward's high-profile clients include Raytheon Technologies Co. NYSE: RTX, Caterpillar Inc. NYSE: CAT, General Electronic NYSE: GE, Baker Hughes Co. NASDAQ: BKR, The Boeing Co. NYSE: BA and Airbus.

Despite challenges in its industrial segment, Woodward delivered record fiscal 2024 growth driven by strong aerospace sales. The stock is now forming a technical pattern that may indicate potential future price movement, presenting new opportunities for investors.

Record Sales Growth in 2024

Woodward delivered record fiscal full-year 2024 revenue, growing 14% year-over-year (YoY) and surpassing $3 billion. It delivered 45% YoY EPS growth of $6.11, 61% net earnings growth of $373 million, and 46% YoY adjusted free cash flow growth to $348 million.

Its fiscal fourth-quarter 2024 EPS was $1.41, beating consensus analyst estimates by 15 cents. Revenues rose 10% YoY to $855 million, crushing the $810.39 million consensus estimate.

Aerospace Sales Grew Double Digits

Its commercial aerospace OEM sales grew 13% YoY, supported by strong demand despite supply chain challenges, while commercial aftermarket sales increased 17%, fueled by higher passenger traffic and greater aircraft utilization. Defense aerospace OEM sales rose 10%, driven by improved guided weapons shipments and ground vehicle growth, and defense aftermarket sales surged 21% due to better operational execution and a stabilized supply chain. Overall, Q4 Aerospace sales climbed 22% to $553 million, boosting earnings by 25% to $106 million and expanding margins by 200 basis points to 19.2%.

Industrial Sales Dragged Down by Oil and Gas

Woodward's Industrial sales fell 6% YoY to $302 million, while earnings fell 30% to $38 million, causing margins to slip 430 bps to 12.6%. The Industrial markets are comprised of three main segments: Power Generation, Transportation, and Oil and Gas. Power Generation saw 11% YoY sales growth driven by robust global power demand driven by data centers and associated backup power. This also caused an increased demand to support grid stability. The Transportation segment saw 22% YoY growth due to a healthy global marine market with shipyards at capacity with higher utilization. 

There's been increasing demand for alternative fuels across the marine industry. However, demand for heavy-duty trucks was soft in China due to the weak local economy and narrowing fuel price spread. The Oil and Gas segment sales fell 3% YoY due to softening overall oil and gas demand. The outlook remains positive related to potential investments in refinement and petrochemical activities in China, India, and the Middle East.

Full Year 2025 Guidance

CEO Chip Blankenship was upbeat during the conference call. He noted that both segments, Aerospace and Industrial, reported strong performance. Aerospace sales rose 15% YoY to hit record levels as margins expanded 260 basis points. Industrial sales still hit a record that was boosted by its China on-highway product line, resulting in all-time high EPS and free cash flow increase by over $100 million YoY. He did note that the work stoppage had negatively affected its direct sales at Boeing, but the company shifted by redeploying resources to other areas.

For the full year 2025, the company anticipates:

• EPS: Between $5.75 and $6.25 (aligning with the consensus estimate of $5.85)

• Revenue: Between $3.3 to $3.5 billion (consistent with the consensus estimate of $3.38 billion)

• Free Cash Flow: Between $350 and $450 million

• Aerospace Sales: Increase by 6% to 13% YoY

• Industrial Sales: Decrease by 7.5% to 11% YoY

The rise of AI and other computing needs is fueling the growing demand for data center power. Blankenship notes that "Woodward is well positioned to capture this opportunity, which includes control, actuation, and fuel metering systems for both base load natural gas and backup diesel applications."

WWD Stock Forms a Symmetrical Triangle Pattern

A symmetrical triangle is comprised of a descending (falling) upper trendline resistance converging with an ascending (rising) lower trendline support at the apex point. A breakout occurs when the stock surges above the upper trendline resistance. A breakdown occurs when the stock collapses below the lower trendline support. A breakout or breakdown becomes eminent as the stock gets closer to the apex point as the channel narrows.

WWD formed its descending upper trendline resistance near $187.44, while the ascending lower trendline support started at $145.80. The robust Q4 earnings report triggered a gap that peaked at $201.64 and triggered a gap and crap sell-the-news reaction that caused WWD to slip back into the symmetrical triangle range. Shares slipped through the upper trendline to retest the lower trendline and daily anchored VWAP support at $168.83. The daily RSI coil also stalled out at the 43-band. WWD will either fall below the lower trendline from here or retest the upper trendline, ultimately setting up a break as it nears the apex point. Fibonacci (Fib) pullback support levels are at $161.66, $152.81, $145.80 and $140.29.

WWD's average consensus price target is $187.44, implying a 10.32% upside, and its highest analyst price target sits at $228.00. It has four analysts' Buy ratings and five Hold ratings. The stock has a tiny 1.73% short interest.

Bullish investors can consider using cash-secured puts at the Fib pullback support levels to buy the dip. If assigned the shares, then writing covered call at upside Fib levels executes a wheel strategy for additional income while collecting the 0.59% annual dividend yield.