BWX (BWXT)

Underperform
We aren’t fans of BWX. Its poor sales growth and falling returns on capital suggest its growth opportunities are shrinking. StockStory Analyst Team
Anthony Lee, Lead Equity Analyst
Max Juang, Equity Analyst

1. News

2. Summary

Underperform

Why BWX Is Not Exciting

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.

  • Earnings growth over the last five years fell short of the peer group average as its EPS only increased by 3.6% annually
  • Ability to fund investments or reward shareholders with increased buybacks or dividends is restricted by its weak free cash flow margin of 5.2% for the last five years
  • A positive is that its sales outlook for the upcoming 12 months calls for 12.6% growth, an acceleration from its two-year trend
BWX doesn’t meet our quality criteria. We believe there are better opportunities elsewhere.
StockStory Analyst Team

Why There Are Better Opportunities Than BWX

BWX is trading at $139 per share, or 38.4x forward P/E. This multiple is higher than that of industrials peers; it’s also rich for the top-line growth of the company. Not a great combination.

We’d rather invest in similarly-priced but higher-quality companies with more reliable earnings growth.

3. BWX (BWXT) Research Report: Q1 CY2025 Update

Aerospace and defense company BWX (NYSE:BWXT) reported revenue ahead of Wall Street’s expectations in Q1 CY2025, with sales up 13% year on year to $682.3 million. On the other hand, the company’s full-year revenue guidance of $3 billion at the midpoint came in 0.9% below analysts’ estimates. Its non-GAAP profit of $0.91 per share was 19% above analysts’ consensus estimates.

BWX (BWXT) Q1 CY2025 Highlights:

  • Revenue: $682.3 million vs analyst estimates of $648.9 million (13% year-on-year growth, 5.1% beat)
  • Adjusted EPS: $0.91 vs analyst estimates of $0.76 (19% beat)
  • Adjusted EBITDA: $129.8 million vs analyst estimates of $118.6 million (19% margin, 9.4% beat)
  • The company reconfirmed its revenue guidance for the full year of $3 billion at the midpoint
  • Management reiterated its full-year Adjusted EPS guidance of $3.47 at the midpoint
  • EBITDA guidance for the full year is $560 million at the midpoint, in line with analyst expectations
  • Operating Margin: 14.2%, down from 15.4% in the same quarter last year
  • Free Cash Flow Margin: 2.5%, up from 0.4% in the same quarter last year
  • Backlog: $4.88 billion at quarter end
  • Market Capitalization: $10.29 billion

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.

BWX's primary production focus is on precision naval nuclear components, reactors, and nuclear fuel, as well as services like nuclear materials processing and disposal. The company also diversifies its portfolio by producing medical radioisotopes and radiopharmaceuticals.

BWX serves two types of customers: U.S. government agencies and commercial entities. Its government operations cater to the U.S. Department of Energy and Naval Nuclear Propulsion Program, which utilize the company's products and services such as Uranium fuel processing and maintenance of nuclear sites. On the other hand, commercially, BWX primarily sells auxiliary equipment such as reactor components to the nuclear industry, while radiopharmaceutical industries purchase products used in diagnostic imaging and radiotherapeutic treatments.

The company often secures its sales through contracts with government agencies and commercial entities, where contracts with government agencies are mostly long-term and fixed-price incentive fee contracts that provide the reimbursement of allowable costs incurred plus a fee. Contracts with commercial entities vary in scope and are often fixed-price contracts awarded through competitive bidding processes.

4. 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.

BWX’s peers and competitors include Lockheed Martin (NYSE:LMT) and Honeywell (NASDAQ:HON).

5. Sales Growth

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Over the last five years, BWX grew its sales at a mediocre 6.6% compounded annual growth rate. This was below our standard for the industrials sector and is a tough starting point for our analysis.

BWX Quarterly Revenue

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 10.7% over the last two years is above its five-year trend, suggesting its demand recently accelerated. BWX Year-On-Year Revenue Growth

We can better understand the company’s revenue dynamics by analyzing its most important segments, Government Operations and Commercial Operations, which are 0.1% and 0% of revenue. Over the last two years, BWX’s Government Operations revenue (public sector sales) averaged 3.2% year-on-year declines while its Commercial Operations revenue (private sector sales) averaged 3% declines.

This quarter, BWX reported year-on-year revenue growth of 13%, and its $682.3 million of revenue exceeded Wall Street’s estimates by 5.1%.

Looking ahead, sell-side analysts expect revenue to grow 12.7% over the next 12 months, an improvement versus the last two years. This projection is healthy and implies its newer products and services will fuel better top-line performance.

6. Operating Margin

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

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 15.4%.

Looking at the trend in its profitability, BWX’s operating margin decreased by 2.4 percentage points over the last five years. This raises questions 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.

BWX Trailing 12-Month Operating Margin (GAAP)

This quarter, BWX generated an operating profit margin of 14.2%, down 1.2 percentage points year on year. This reduction is quite minuscule and indicates the company’s overall cost structure has been relatively stable.

7. Earnings Per Share

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.

BWX’s EPS grew at a weak 3.7% compounded annual growth rate over the last five years, lower than its 6.6% 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.

BWX Trailing 12-Month EPS (Non-GAAP)

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 2.4 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 more recent period because it can provide insight into an emerging theme or development for the business.

For BWX, its two-year annual EPS growth of 5.3% was higher than its five-year trend. Accelerating earnings growth is almost always an encouraging data point.

In Q1, BWX reported EPS at $0.91, up from $0.76 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 BWX’s full-year EPS of $3.49 to grow 3.3%.

8. Cash Is King

Although earnings are undoubtedly valuable for assessing company performance, we believe cash is king because you can’t use accounting profits to pay the bills.

BWX has shown mediocre cash profitability over the last five years, giving the company limited opportunities to return capital to shareholders. Its free cash flow margin averaged 5.2%, subpar for an industrials business. The divergence from its good operating margin stems from its capital-intensive business model, which requires BWX to make large cash investments in working capital and capital expenditures.

Taking a step back, an encouraging sign is that BWX’s margin expanded by 9.3 percentage points during that time. The company’s improvement shows it’s heading in the right direction, and we can see it became a less capital-intensive business because its free cash flow profitability rose while its operating profitability fell.

BWX Trailing 12-Month Free Cash Flow Margin

BWX’s free cash flow clocked in at $17.28 million in Q1, equivalent to a 2.5% margin. This result was good as its margin was 2.1 percentage points higher than in the same quarter last year, building on its favorable historical trend.

9. Return on Invested Capital (ROIC)

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Although BWX hasn’t been the highest-quality company lately because of its poor bottom-line (EPS) performance, it historically found a few growth initiatives that worked out well. Its five-year average ROIC was 14.9%, impressive for an industrials business.

BWX Trailing 12-Month Return On Invested Capital

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. Unfortunately, BWX’s ROIC averaged 2.3 percentage point decreases over the last few years. We like what management has done in the past, but its declining returns are perhaps a symptom of fewer profitable growth opportunities.

10. Balance Sheet Assessment

BWX reported $55.44 million of cash and $1.20 billion 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.

BWX Net Debt Position

With $513.3 million of EBITDA over the last 12 months, we view BWX’s 2.2× net-debt-to-EBITDA ratio as safe. We also see its $20.9 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.

11. Key Takeaways from BWX’s Q1 Results

We were impressed by how significantly BWX blew past analysts’ EBITDA expectations this quarter. We were also excited its revenue outperformed Wall Street’s estimates by a wide margin. On the other hand, its Government Operations revenue missed and its full-year revenue guidance fell slightly short of Wall Street’s estimates. Overall, we think this was still a decent quarter with some key metrics above expectations. The stock traded up 2.9% to $115.25 immediately following the results.

12. Is Now The Time To Buy BWX?

Updated: June 14, 2025 at 11:09 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in BWX.

BWX isn’t a terrible business, but it isn’t one of our picks. For starters, its revenue growth was mediocre over the last five years. And while its rising cash profitability gives it more optionality, the downside is its projected EPS for the next year is lacking. On top of that, its weak EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders.

BWX’s P/E ratio based on the next 12 months is 38.4x. At this valuation, there’s a lot of good news priced in - you can find better investment opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $139.97 on the company (compared to the current share price of $139).