Airplane parts supplier Woodward, Inc. (WWD -3.00%) stock took off on Thursday, topping out near a 16% gain in early trading before falling back to book a -- still respectable -- 8.8% gain as of 12:50 p.m. EST, after Bloomberg reported that Boeing (BA -2.25%) is in talks to buy the company.
According to Bloomberg, Boeing is looking to add Woodward, a maker of actuators and control systems for turbine engines, to its new Global Services division, and has already held "preliminary talks" about a buyout.
That sounds propitious, but Bloomberg also points out that Woodward stock is valued in excess of $5 billion. At nearly 31 times earnings, and 2.4 times trailing sales, Woodward stock is not exactly cheap. With that in mind, Bloomberg noted that despite going on for "months," there is no deal imminent, "nor is there any guarantee Boeing would reach a final agreement with Woodward."
That being said, a deal could still happen. While pricier than Boeing on both a P/E and a P/S basis, Woodward boasts stronger operating profit margins than Boeing -- 12.4% to Boeing's 10.8%. Both companies are expected to grow at similar rates -- better than 15% each over the next five years. These factors could make the company look attractive to Boeing, which is reversing a decades-long trend toward outsourcing work, and moving to add more vertical integration of parts-makers to its business.
Investors still need to be cautious, in case a deal is not in the offing. Taken on its own, Woodward stock at 31 times earnings seems expensive relative to the stock's 15% growth rate and meager 0.7% dividend yield. Unless you would be perfectly happy owning a stock with those numbers, it's probably better not to bet on Boeing buying Woodward first.