Woodward Up 10% YTD: Can the Stock Gain Further Momentum?

Core Viewpoint - Woodward, Inc. (WWD) has shown muted growth with a year-to-date increase of 9.7%, outperforming the Aerospace-Defense Equipment industry's growth of 2.8% and the S&P 500's decline of 5.1%, raising questions about the potential for further stock momentum [1]. Price Performance - WWD stock is trading above its 100-day moving average, indicating strong upward momentum and price stability, closing at $182.49, which is 9.5% below its 52-week high of $201.64 reached on November 26, 2024 [3]. Aerospace Unit as a Catalyst - The Aerospace segment is a key driver for Woodward's revenue growth, with expectations for improvement in upcoming quarters due to strong commercial aftermarket demand and increased defense activity, despite supply chain challenges [5]. - In Q1 of fiscal 2025, net sales in the Aerospace segment rose by 7% year-over-year, with defense OEM and aftermarket sales increasing by 21% and 8%, respectively, and commercial aftermarket sales up by 19% [8]. - Geopolitical factors are boosting demand for defense products, with anticipated revenue growth in the Aerospace segment ranging from 6-13% for fiscal 2025, and segment earnings expected to be 20-21% of revenues [9]. Industrial Business Tailwinds - Woodward's Industrial segment benefits from strong demand for power generation and backup power for data centers, alongside increased investment in gas-powered generation for grid stability [10]. - The company is also seeing growth in alternative fuels in the marine industry and positive investment outlooks in refining and petrochemical activities in China, the Middle East, and India [10]. - However, challenges such as supply chain issues and a decline in revenues from China's on-highway natural-gas trucks are expected to impact the Industrial segment, with revenues projected to decline by 7-11% [12]. Capital Deployment Strategy - Woodward's capital allocation strategy supports innovation and acquisitions, returning $449 million to shareholders in fiscal 2024 through dividends and share repurchases [13]. - The quarterly dividend was increased by 12% to 28 cents per share in February 2025 [14]. Valuation - WWD stock is currently trading at a forward 12-month Price/Earnings ratio of 27.48X, which is lower than the industry average of 35.93X, presenting an attractive investment opportunity [15]. Investment Strategy - The combination of momentum in the Aerospace and Industrial segments, discounted valuation, and shareholder returns positions WWD as an appealing long-term investment [16].