Woodward, Inc. (WWD) stock intrinsic value fair value estimate & owner earnings analysis

What the business is. Woodward designs and makes fuel, combustion, actuation and motion-control systems. Aerospace (about $2.31 billion of fiscal 2025's $3.57 billion of sales) supplies fuel systems and actuators for engines and airframes such as the CFM LEAP, Pratt & Whitney GTF, Boeing 737 MAX and 787, Airbus A320neo and A350, plus defense programs including the F-35, Black Hawk, Apache and smart munitions such as JDAM. In fiscal 2025 that split into commercial OEM $691 million, commercial services $824 million, defense OEM $561 million and defense services $237 million. Industrial ($1.25 billion) sells controls and fuel systems for power-generation turbines and engines ($489 million, with demand helped by data centers), transportation ($507 million: marine, locomotives and natural-gas trucks in China) and oil and gas ($258 million). The economics rest on certification: once a Woodward part is designed into an engine or aircraft it is usually the sole source for spares and repairs for the 25 years or more that the fleet flies, so every new aircraft delivered adds to a long tail of service revenue. No customer accounted for 10% of sales in fiscal 2024 or 2025. Earnings history. We measure owner earnings as operating cash flow, with working-capital swings taken out, minus stock compensation and minus the capital spending needed to keep the business at its current size. Per diluted share this was $0.27 in fiscal 2016, $3.32 in 2017, $2.29 in 2018, $4.89 in 2019, $4.82 in 2020, $4.33 in 2021, $3.47 in 2022, $4.17 in 2023, $5.85 in 2024 and $5.90 in 2025. Fiscal 2016 is distorted: we took out the one-time $250 million that GE paid when it formed the fuel-systems joint venture, and that year also carried $176 million of capital spending, largely on new facilities. Fiscal 2018 was the year of the L'Orange fuel-injection acquisition and another heavy capital year. Because the lenders are valued separately below, we add back interest paid (about $35 million a year), which gives cash earnings before interest of $6.44 a share in 2024 and $6.46 in 2025. The starting level. We start from $6.45 a share of pre-interest cash earnings, the fiscal 2024-2025 level. A plain median of 2019-2025 would give about $5.25. That figure mixes in a much smaller business (sales per share rose about 30% from fiscal 2019 to fiscal 2025, and more since) and the years of the pandemic and the supply-chain disruption that followed. Taking the median owner-earnings margin over 2019-2025 (about 10.9% of sales), applying it to fiscal 2025 sales and adding back interest gives roughly $6.90, so $6.45 sits below what the business has shown it can do through a cycle. Fiscal 2026 is running well above that level. The nine months to June 2026 brought sales of $3.20 billion against $2.57 billion a year earlier and net earnings of $414 million against $304 million; in the June quarter Aerospace grew 19% and Industrial 26%. On our rough estimate the twelve months to June 2026 come to about $8.50 a share before interest. Three strong quarters inform the near-term path, but they do not yet set the level. Management itself said that some fiscal 2025 aftermarket orders were placed early, and the China natural-gas truck business has proved volatile: Industrial sales in China fell from $294 million in fiscal 2024 to $138 million in fiscal 2025. Growth check. Owner earnings per share grew about 1% in fiscal 2025, the last full year reported. The base case's first year (fiscal 2027) uses $7.50, which is 16% above the $6.45 starting level but below the fiscal 2026 run rate. The specific reason for going above 2025's 1% is the July 2026 quarterly filing, which shows sales up 24% and earnings up 36% for the nine months. Accounting judgements. Woodward's deferred taxes took cash away in fiscal 2023-2025 (between $40 million and $52 million a year of tax paid ahead of book) and then swung to a $76 million benefit in the first nine months of fiscal 2026. We treat that swing as timing and keep it out of the run rate. Amortization of acquired intangibles (about $28 million in fiscal 2025, mostly from L'Orange, plus the July 2025 purchase of Safran's electromechanical actuation business) is added back as a non-cash charge. We assume that ongoing research spending, which is already deducted from these earnings, keeps those franchises alive, and the bear case carries the risk that it does not. Non-cash revenue from amortizing the GE joint-venture payment never enters, because the measure is built from cash. Capital spending roughly doubled in fiscal 2026 ($156 million in nine months against $79 million a year earlier). We treat only the part tied to sales growth as expansion and charge the rest as upkeep. Base case (about $155 a share). Pre-interest cash earnings are $7.50 in fiscal 2027, then grow 5% a year through 2031 and 4% a year through 2036. Three things support that growth. Boeing and Airbus have large backlogs and planned rate increases on the 737 MAX, A320neo, A350 and 787. The installed base of LEAP and GTF engines and new single-aisle aircraft, on which Woodward has heavy content, keeps getting bigger. And the newly contracted A350 spoiler actuation and A350 horizontal-stabilizer actuator content (from the Safran deal) comes on top. Per-share owner earnings actually grew about 7.5% a year from 2017 to 2025, through the pandemic. After 2036 earnings are held flat, with no growth assumed, because spares and repairs on fleets already in service last for decades and Woodward has won content on each new generation of engines and aircraft. We gave no credit for share gains, new aircraft programs that are not yet launched, margin expansion beyond what the business has already reached, or further growth in data-center power demand. The business is worth about $10.4 billion. It owes about $0.94 billion net, leaving about $9.4 billion, or $154.71 a share. Bear case (about $81 a share). The fiscal 2026 surge fades back to the 2024-2025 level ($6.45) as early-bought spares are used up and the China truck business shrinks again. Then the industry goes through a downturn like the 2020 shutdown. Woodward's own record from that episode: sales fell from $2.90 billion in fiscal 2019 to $2.25 billion in fiscal 2021 (down 23%), and per-share owner earnings fell from $4.89 to $3.47 by 2022 (down 29%). We use a deeper 35% drop, to $4.19 a share for fiscal 2029-2030, with recovery to $6.45 only by 2033 and 2% growth after that. From 2037 earnings shrink 1% a year. That reflects the competition named in the filing (GE Aerospace runs a fuel-systems joint venture with Parker Hannifin, and Honeywell, Moog, Parker, Eaton and RTX all compete) and the risk that Woodward does not win the next engine generation. Even at the trough, cash earnings before interest of about $255 million cover roughly $60 million of interest several times over. The business is worth about $5.9 billion. It owes about $0.94 billion net, leaving about $5.0 billion, or $81.35 a share. Bull case (about $218 a share). The fiscal 2026 run rate holds, at $8.40 a share in fiscal 2027. Earnings then grow 7% a year through 2031, in line with the 2017-2025 record, as the 737 MAX and A320neo rate increases and the A350 content arrive on schedule. Growth is 5% a year through 2036, then 2% a year for another decade as the larger installed base keeps paying for spares and repairs, and flat after that. The business is worth about $14.2 billion. It owes about $0.94 billion net, leaving about $13.3 billion, or $217.88 a share. Debt. At June 30, 2026 Woodward had $1.34 billion of borrowings: $592 million of short-term revolver and commercial borrowings, $132 million of notes due within a year (including the 4.35% Series Q notes, $85 million due May 2027) and $618 million of longer-dated notes, after $250 million of new long-term borrowing in fiscal 2026. Finance leases add about $3 million. Cash was $475 million, of which we treat about $100 million as needed to run the business, a level it has historically operated with. Debt rose this year mainly because Woodward repurchased $553 million of stock and spent $132 million on acquisitions in nine months. The long-dated private-placement notes carry fixed coupons of 1.3% to 4.6% (Series N 1.31% due 2028, Series O 1.57% due 2031, Series R, S and T at about 4.4% to 4.6%), which is cheaper than long-run borrowing costs, and we reduce the debt figure by about $30 million for that. Net debt is about $940 million, roughly $15.40 a share. Maturities are spread out, and nothing in the filings suggests refinancing pressure. Margin-of-safety price: $80. How sure are we of the earnings level? Fairly sure. Owner earnings have been between $4.17 and $5.90 a share every year since 2019 except the 2022 supply-chain year, and no single customer is 10% of sales. The worst plausible outcome is a long aviation shutdown on top of the loss of the China truck business and a lost next-generation engine competition. The balance sheet would survive that: net debt is about two and a half years of pre-interest cash earnings at the fiscal 2024-2025 level, and the assets are certified designs with decades-long spare-parts streams, not commodities. The two or three things we are most likely to be wrong about are whether fiscal 2026 is a cyclical peak in aftermarket demand, when the next downturn arrives, and whether stock buybacks keep being funded with debt. If all three go against us, the shares are worth roughly $80 to $85 for the next several years. The dividend ($1.28 a year) pays very little over the holding period, so most of the return has to come from the value of the business being recognized; the price assumes a holding period of about four years. On our base path the business should be worth about $164 a share four years from now. From $80, that value plus dividends implies roughly a 20% annual return, and the bear case implies roughly the starting value. Above $80, the bear outcome implies a loss and the base outcome falls short of 20% unless the value is recognized quickly. What would make this wrong. The value would rise materially if the fiscal 2026 step-up proves durable through a downturn, for example if the data-center power and defense munitions demand seen in 2025-2026 persists, or if Woodward wins major content on the next narrow-body engines. It would fall if aerospace aftermarket demand reverses sharply or the debt-funded buybacks continue at fiscal 2026's pace. A previous analysis of Woodward was prepared on a different basis, and its figures are not comparable with these.