Woodward Inc (WWD, Financial) has recently experienced a significant daily gain of 7.47%, and a three-month gain of 18.06%. With an Earnings Per Share (EPS) of 4.74, investors might wonder if the stock is modestly overvalued. This article delves into the intrinsic valuation of Woodward, encouraging readers to explore our detailed financial analysis.
Company Overview
Woodward Inc is a prominent independent designer, manufacturer, and service provider of control solutions for the aerospace and industrial markets. The company excels in creating efficient, low-emission, and high-performance energy control products for diverse applications in challenging environments. With facilities primarily in the United States, Europe, and Asia, Woodward promotes its innovative products and services globally. Currently, the company's stock price stands at $162.36, with a market cap of $9.80 billion, juxtaposed against a GF Value of $146.77, suggesting a modest overvaluation.
Understanding GF Value
The GF Value is a proprietary measure calculated to represent the true intrinsic value of a stock. It integrates historical trading multiples, a GuruFocus adjustment factor based on past returns and growth, and future business performance estimates. If Woodward's stock price significantly exceeds this GF Value, it might indicate an overvaluation, leading to potentially lower future returns. Conversely, trading below the GF Value could suggest a potential for higher returns.
Financial Strength and Stability
Investing in companies with robust financial strength is crucial to mitigate the risk of permanent loss. Woodward's cash-to-debt ratio stands at 0.2, which is lower than 73.55% of its peers in the Aerospace & Defense industry. This metric, along with its fair overall financial strength rating of 7 out of 10, suggests that Woodward maintains a reasonable balance sheet.
Profitability and Growth Prospects
Woodward has consistently demonstrated profitability over the past decade, with a notable operating margin of 11.48%, ranking better than 71.15% of its industry counterparts. However, its growth metrics, including a 3-year average annual revenue growth rate of 6.8%, position it below 53.21% of companies in the Aerospace & Defense sector. Such figures are essential for assessing the long-term value creation potential of Woodward.
Evaluating ROIC and WACC
An effective method to assess a company's profitability is comparing its Return on Invested Capital (ROIC) to its Weighted Average Cost of Capital (WACC). Woodward's ROIC over the past year stands at 8.54, unfortunately below its WACC of 9.77, indicating challenges in generating value exceeding its capital costs.
Conclusion
Overall, Woodward (WWD, Financial) appears modestly overvalued based on its current market price relative to its GF Value. The company's financial condition and profitability are fair, but its growth and value creation metrics suggest potential concerns for long-term investors. For more insights into Woodward's financial health and performance, explore its 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.
