Please ensure Javascript is enabled for purposes of website accessibility

Why Woodward Stock Popped 9% Today

By Rich Smith - Feb 8, 2018 at 2:20PM

You’re reading a free article with opinions that may differ from The Motley Fool’s Premium Investing Services. Become a Motley Fool member today to get instant access to our top analyst recommendations, in-depth research, investing resources, and more. Learn More

A suitor from Seattle has been seen sniffing around.

What happened

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.

So what

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."

The front of a Boeing 737.

Boeing builds airplanes. An airplane parts-maker could be useful for that, don't you think? Image source: Getty Images.

Now what

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.

Invest Smarter with The Motley Fool

Join Over 1 Million Premium Members Receiving…

  • New Stock Picks Each Month
  • Detailed Analysis of Companies
  • Model Portfolios
  • Live Streaming During Market Hours
  • And Much More
Get Started Now

Stocks Mentioned

The Boeing Company Stock Quote
The Boeing Company
BA
$136.69 (-2.25%) $-3.15
Woodward, Inc. Stock Quote
Woodward, Inc.
WWD
$90.68 (-3.00%) $-2.80

*Average returns of all recommendations since inception. Cost basis and return based on previous market day close.

Related Articles

Motley Fool Returns

Motley Fool Stock Advisor

Market-beating stocks from our award-winning analyst team.

Stock Advisor Returns
316%
 
S&P 500 Returns
112%

Calculated by average return of all stock recommendations since inception of the Stock Advisor service in February of 2002. Returns as of 07/05/2022.

Discounted offers are only available to new members. Stock Advisor list price is $199 per year.

Premium Investing Services

Invest better with The Motley Fool. Get stock recommendations, portfolio guidance, and more from The Motley Fool's premium services.