BWX (BWXT)

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.

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.

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).

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.

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.

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.

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.

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.

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.

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%.

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’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.

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.

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.

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.

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.

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.

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).