WWD

We rate Woodward, Inc. (WWD) as a Buy with a composite score of 70.7/100 at a current price of $394.98. The stock scores above average across the majority of our six quantitative factors and ranks #81 out of 7,333 stocks in our universe, reflecting a favorable risk-reward profile.

The rating is primarily driven by strength in value (83th percentile) and quality (81th percentile), which together account for the majority of the composite score. Offsetting weakness in investment (37th percentile) and stability (70th percentile) tempers our overall conviction. We assign a Narrow Moat rating (55/100), Medium uncertainty, and Poor capital allocation.

Key items to watch: quarterly earnings execution and sector-level competitive dynamics. Any material change in these dynamics could warrant a reassessment of our rating. The moat trend is stable, which suggests the competitive landscape is stable for now.

Woodward, Inc. holds a lower-quartile position (#42 of 50) within the Manufacturing sector, based on our composite quantitative scoring across quality, value, momentum, and stability factors. The composite score of 70.7/100 places it at rank #81 in our full 7,333-stock universe. With a $15.1B market capitalization, Woodward, Inc. operates at meaningful scale within the Manufacturing sector, providing competitive advantages in distribution, procurement, and customer reach.

The near-term outlook is constructive, with revenue growing at 18% and momentum in the 81th percentile confirming positive market sentiment and institutional accumulation. The combination of strong top-line growth and favorable price dynamics suggests the company is executing well on its growth strategy. Investment factor at the 37th percentile indicates reinvestment patterns that investors should monitor for sustainability.

The margin cascade tells an important story: gross margins of 27% (-15.4pp vs sector) narrow to operating margins of 15% (+13.5pp vs sector) and net margins of 12.2%, yielding a gross-to-net conversion rate of 45%. This efficient conversion suggests well-controlled operating costs and limited margin leakage between the gross and net levels.

At a current price of $394.98, Woodward, Inc. appears undervalued relative to its fundamentals. Our value factor score of 83/100 reflects a composite assessment across multiple valuation metrics including price-to-earnings, price-to-book, EV/EBITDA, and price-to-sales ratios relative to both sector peers and the broader market. The stock screens as attractively priced on a majority of these measures, suggesting the market may be underappreciating the underlying fundamentals.

The stock currently trades at a P/E of 53.6x (a 141% premium to the sector median of 22.3x), EV/EBITDA of 44.3x (at a premium), P/B of 9.1x, P/S of 6.6x. The above-sector P/E multiple suggests the market is pricing in superior growth or quality, which our analysis partially supports given strong quality metrics.

We assign a Medium uncertainty rating to Woodward, Inc.. The stock presents a balanced risk profile: elevated valuation multiple (P/E 53.6x) that leaves limited margin for error. While not risk-free, the core business fundamentals are adequate to withstand moderate economic stress, and the range of potential outcomes around our fair value estimate is manageable.

Specific risk factors that inform our assessment include: elevated valuation multiple (P/E 53.6x) that leaves limited margin for error. Each of these factors independently widens the distribution of potential outcomes, and in combination they create a risk profile that demands careful position sizing. The stability factor at the 70th percentile and quality factor at the 81th percentile provide a quantitative summary of the overall risk landscape.

Key risk mitigants include: above-average stability (70th percentile) suggests predictable business dynamics. These factors partially offset the identified risks and provide downside protection in adverse scenarios. On balance, the risk-reward profile is favorable for long-term investors.

We rate Woodward, Inc.'s capital allocation as Poor. Key concerns include suboptimal returns on capital. Exemplary capital allocators generate ROE above 20% and maintain conservative leverage — Woodward, Inc. significantly underperforms these benchmarks, raising questions about management's ability to create shareholder value.

Investors should scrutinize management's reinvestment decisions and balance sheet trajectory before committing capital. Poor capital allocation often compounds over time: overlevered balance sheets limit strategic flexibility, while low returns on capital destroy shareholder value. We would need to see sustained improvement in profitability metrics and balance sheet discipline before considering an upgrade.

In summary, Woodward, Inc. receives a Buy rating with a composite score of 70.7/100 (rank #81 of 7,333). Our quantitative framework assigns a Narrow Moat (55/100, trend: stable), Medium uncertainty, and Poor capital allocation. The average factor score across quality, value, momentum, stability, and investment is 70/100.

Our analysis supports a constructive view on Woodward, Inc.. The combination of identifiable competitive advantages, medium uncertainty, and poor capital allocation creates a risk-reward profile that favors accumulation at current levels. We recommend investors consider adding this name to portfolios aligned with the stock's risk profile.