UBS maintains Buy on Woodward, stock target steady on consensus estimates

On Monday, UBS reaffirmed its Buy rating on shares of Woodward Inc. (NASDAQ:WWD), with a consistent price target of $208.00. The firm's analysis highlighted ongoing discussions regarding the revenue and earnings before interest and taxes (EBIT) for Woodward's Industrial segment, particularly concerning the China Truck versus Core Industrial markets.

The analyst from UBS noted that consensus estimates for Woodward's Industrial revenue and EBIT have been adjusted downward. However, there is still debate about the company's future guidance, especially for fiscal year 2025 (FY25). The firm believes that the consensus revenue estimates for Woodward's Industrial segment in FY25 have become more conservative, reducing potential risks.

It was pointed out that while the consensus estimates suggest a Core margin of approximately 15% for Woodward's Industrial segment, this level of profitability might not be what the company will project for FY25. UBS anticipates that Woodward could achieve a 15% Core margin by fiscal year 2026 (FY26), but this may not be the expectation set by the company for the upcoming fiscal year.

The analysis by UBS also explored various scenarios regarding the potential impact of the China Truck segment on Woodward's revenue and EBIT. These scenarios consider what might be reflected in the consensus estimates for the Core Industrial segment. The firm has prepared a detailed revenue build for Woodward's Industrial segment, which is available upon request for those seeking more in-depth information.

In other recent news, Woodward Inc. faced a price target reduction from TD Cowen due to anticipated challenges in the aerospace original equipment sector and China's natural gas bus and truck engine market. The firm maintained a Buy rating on Woodward, signifying positive long-term investment potential despite the lowered price target.

Woodward also reported a 6% increase in net sales during its third-quarter fiscal year 2024 earnings call, attributed to the Aerospace and Industrial segments. However, due to lower China on-highway sales and ongoing supply disruptions, the company revised its full-year sales guidance to between $3.25 billion and $3.3 billion.

Moreover, Woodward returned $348 million to stockholders and reported a free cash flow of $225 million for the first nine months. Looking ahead, the company forecasts Aerospace sales to grow by 12% to 14% and Industrial sales to increase by 11% to 13%. These are recent developments for Woodward Inc., as it continues to focus on innovation, cost management, and strategic growth.

InvestingPro Insights

Woodward Inc. (NASDAQ:WWD) has demonstrated a strong financial foundation, according to recent data from InvestingPro. With a market capitalization of $9.29 billion, the company shows robust revenue growth, with the last twelve months as of Q3 2024 revealing a notable increase of 16.9%. This growth is complemented by a solid gross profit margin of 26.98% for the same period.

Investors may find comfort in Woodward's ability to maintain dividend payments for 52 consecutive years, with the dividend growth over the last twelve months reaching 13.64%. An InvestingPro Tip highlights that Woodward's liquid assets exceed its short-term obligations, which may reassure investors of the company's financial health in the near term.

Moreover, Woodward's stock is trading at a P/E ratio of 25.17, which InvestingPro Tips suggest is low relative to near-term earnings growth, indicating potential value for investors. The company's commitment to shareholder returns is further evidenced by its history of raising its dividend for 3 consecutive years. For those considering a deeper dive into Woodward's financials, InvestingPro offers additional tips, with 9 more insights available that could provide further clarity on the company's valuation and future prospects.

Despite recent downward revisions in earnings by analysts for the upcoming period, Woodward is expected to remain profitable this year. This is particularly noteworthy as the company navigates the complexities of the China Truck versus Core Industrial markets.

Investors may also note that the stock is currently trading at 82.64% of its 52-week high, with an analyst fair value target of $184, suggesting a potential upside from its previous close of $155.66. The next earnings date is set for November 14, 2024, which will be a key event for investors to watch.

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