Woodward Focuses On Diversifying Revenue Source, Risks Stay
Zacks Investment Research | Dec 28, 2018 06:31AM ET
On Dec 28, we issued an updated research report on Woodward, Inc. (NASDAQ:WWD) .
The control solutions provider for the aerospace and industrial market has been investing significantly in technologies to secure new businesses. It is spending on manufacturing units and automation equipment to perk up efficiency as the company intends to accelerate production. Woodward is focusing on diversifying its revenue stream. Its plan to become a systems integrator has increased contract flow substantially, enabling it to capture a larger market share in the wide-body commercial aircraft field.
The commercial aerospace market is expanding, driven by record passenger, cargo traffic and elevated load factors. Increased production in this space has been observed as aircraft operators continue to take delivery of new aircraft models that are more fuel efficient. The company is also witnessing growth in defense sales, driven by strong demand for smart weapons due to global uncertainty resulting in increased global defense spending.
Woodward’s Aerospace business continues to perform well with production increases in the Airbus A320neo and Boeing (NYSE:BA) 737 MAX driving significant growth in commercial OEM sales. Momentum within its defense OEM business also remains strong, supported by guided weapon sales as well as fixed-wing, rotorcraft and ground programs. The company believes that, in Aerospace business, TRAS systems for the Airbus A320neo, A330neo, Boeing 777X and fuel system for the GE9x are key program investments among others that will drive future growth. In Industrial segment, China VI compliant natural gas engine systems, new emission compliant diesel engine systems and new power converters on next-generation wind turbines are also expected to fuel growth.
Further, to expand its footprint in the OEM market, the company acquired L’Orange — a supplier of fuel injection systems for industrial diesel, heavy fuel oil and dual-fuel — in June 2018. The buyout has enhanced Woodward’s product portfolio as well as extended its presence in key end markets. It has proven to be a strong fit within the company’s Industrial segment with solid technology platform and large installed base. The buyout is also likely to be significantly accretive to its fiscal 2019 results.
On the back of well-execution of strategic plans, the company expects total net sales of $2.65-$2.8 billion for fiscal 2019 with 10% and 30% rise in Aerospace and Industrial sales, respectively, year over year. While adjusted earnings per share are projected to be between $4.40 and $4.70, based on nearly 65 million outstanding shares, free cash flow is expected to be around $300 million.
The stock has gained 42.7% compared with 14.9% growth recorded by the Zacks Investment Research
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