Woodward (WWD)

Aerospace and defense company Woodward (NASDAQ:WWD) beat Wall Street’s revenue expectations in Q3 CY2025, with sales up 16.5% year on year to $995.3 million. Its GAAP profit of $2.23 per share was 18.6% above analysts’ consensus estimates.

Company Overview

Initially designing controls for water wheels in the early 1900s, Woodward (NASDAQ:WWD) designs, services, and manufactures energy control products and optimization solutions.

Aerospace companies often possess technical expertise and have made significant capital investments to produce complex products. It is an industry where innovation is important, and lately, emissions and automation are in focus, so companies that boast advances in these areas can take market share. On the other hand, demand for aerospace products can ebb and flow with economic cycles and geopolitical tensions, which can be particularly painful for companies with high fixed costs.

Woodward’s peers and competitors include Moog (NYSE:MOG.A) and Collins Aerospace (NYSE:COL).

A company’s long-term sales performance is one signal of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Unfortunately, Woodward’s 7.4% annualized revenue growth over the last five years was mediocre. This fell short of our benchmark for the industrials sector and is a rough 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. Woodward’s annualized revenue growth of 10.6% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

This quarter, Woodward reported year-on-year revenue growth of 16.5%, and its $995.3 million of revenue exceeded Wall Street’s estimates by 5.9%.

Looking ahead, sell-side analysts expect revenue to grow 8% over the next 12 months, a slight deceleration versus the last two years. Still, this projection is above average for the sector and implies the market sees some success for its newer products and services.

Woodward has managed its cost base well over the last five years. It demonstrated solid profitability for an industrials business, producing an average operating margin of 11.4%.

Looking at the trend in its profitability, Woodward’s operating margin rose by 3.2 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Woodward generated an operating margin profit margin of 17%, up 5.8 percentage points year on year. This increase was a welcome development and shows it was more efficient.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Woodward’s EPS grew at a remarkable 14% compounded annual growth rate over the last five years, higher than its 7.4% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into Woodward’s quality of earnings can give us a better understanding of its performance. As we mentioned earlier, Woodward’s operating margin expanded by 3.2 percentage points over the last five years. On top of that, its share count shrank by 3.6%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Woodward, its two-year annual EPS growth of 38.1% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q3, Woodward reported EPS of $2.23, up from $1.36 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Woodward’s full-year EPS of $7.19 to grow 9%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Woodward has shown robust cash profitability, enabling it to comfortably ride out cyclical downturns while investing in plenty of new offerings and returning capital to investors. The company’s free cash flow margin averaged 10.3% over the last five years, quite impressive for an industrials business.

Taking a step back, we can see that Woodward’s margin dropped by 9.5 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Woodward’s free cash flow clocked in at $180.9 million in Q3, equivalent to a 18.2% margin. This result was good as its margin was 4.4 percentage points higher than in the same quarter last year. Its cash profitability was also above its five-year level, and we hope the company can build on this trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Woodward’s management team makes decent investment decisions and generates value for shareholders. Its five-year average ROIC was 10.1%, slightly better than typical industrials business.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Over the last few years, Woodward’s ROIC has increased. This is a good sign, and if its returns keep rising, there’s a chance it could evolve into an investable business.

Woodward reported $327.4 million of cash and $579.3 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $663 million of EBITDA over the last 12 months, we view Woodward’s 0.4× net-debt-to-EBITDA ratio as safe. We also see its $15.05 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were impressed by how significantly Woodward blew past analysts’ revenue expectations this quarter. We were also glad its EPS outperformed Wall Street’s estimates. On the other hand, its full-year EPS guidance missed. Overall, we think this was a decent quarter with some key metrics above expectations. The stock traded up 1.4% to $264.12 immediately after reporting.

Updated: December 3, 2025 at 10:35 PM EST

When considering an investment in Woodward, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

There are a lot of things to like about Woodward. Although its revenue growth was mediocre over the last five years, its growth over the next 12 months is expected to be higher. And while Woodward’s cash profitability fell over the last five years, its remarkable EPS growth over the last five years shows its profits are trickling down to shareholders. On top of that, its strong free cash flow generation allows it to invest in growth initiatives while maintaining an ample cushion.

Woodward’s P/E ratio based on the next 12 months is 37.2x. This valuation tells us that a lot of optimism is priced in. Add this one to your watchlist and come back to it later.

Wall Street analysts have a consensus one-year price target of $324.75 on the company (compared to the current share price of $286.50).