Curtiss-Wright: A Strategic Buy Amid Defense Sector Re-Rating

In an era of escalating geopolitical tensions and surging global defense budgets, Curtiss-Wright Corporation (NYSE:CW) has emerged as a compelling case study in undervaluation and operational excellence. The aerospace and defense contractor's recent Q2 2025 earnings report not only exceeded expectations but also signaled a potential re-rating in a sector poised for long-term growth. With a revised price target of $520 from analysts, robust free cash flow generation, and a strategic pivot toward high-margin markets, Curtiss-Wright presents a compelling opportunity for investors seeking exposure to the defense industrial base.

Earnings Catalysts and Margin Expansion

Curtiss-Wright's Q2 2025 results were a masterclass in disciplined execution. The company reported revenue of $877 million, a 12% year-over-year increase, driven by double-digit growth in its Naval & Power segment and strong demand in defense electronics. Adjusted operating income rose 20% to $160 million, with operating margins expanding 130 basis points to 18.3%. Diluted EPS hit $3.23, up 21% year-over-year, outpacing the $3.10 consensus estimate. These figures underscore Curtiss-Wright's ability to leverage its “Pivot to Growth” strategy, which emphasizes operational efficiency, restructuring, and targeted acquisitions like the Ultra Energy deal in the commercial nuclear sector.

The company's cash flow generation is equally impressive. Free cash flow (FCF) for Q2 reached $117 million, a 17% year-over-year increase, with full-year guidance now set at $520–$535 million. This represents over 105% FCF conversion, a metric that has historically been a red flag for underperforming companies. Curtiss-Wright's ability to generate cash while investing in R&D and strategic partnerships—such as its $80 million U.S. Air Force contract for flight test instrumentation—positions it to capitalize on secular trends in defense modernization and energy transition.

Strategic Partnerships and Market Positioning

Curtiss-Wright's recent contract wins and partnerships have further solidified its market position. The company secured a multi-million-dollar agreement with Rolls-Royce SMR to supply non-programmable diverse Reactor Protection Systems for small modular reactors (SMRs), a critical component in the global push for low-carbon energy. Additionally, its collaboration with TerraPower on advanced nuclear reactor training simulators and its IDIQ contract with the U.S. Air Force highlight its technical expertise in mission-critical systems. These contracts not only diversify revenue streams but also align with long-term secular growth drivers in nuclear energy and defense.

Analyst Price Target Revisions and Valuation

The most recent catalyst for re-rating potential has been the upward revision of analyst price targets. Citigroup analyst Jason Gursky raised his target to $525–$568, while Morgan Stanley's Kristine Liwag set a $550 level, both citing Curtiss-Wright's earnings momentum and strategic positioning. The $520 level, in particular, reflects a 12% upside from the stock's recent closing price of $473.27 and is supported by the company's raised full-year guidance: 9–10% sales growth, 15–18% operating income growth, and $12.70–$13.00 diluted EPS.

Despite these revisions, Curtiss-Wright remains attractively valued. At current levels, the stock trades at a price-to-earnings (P/E) ratio of 28x, below its five-year average of 32x, and a price-to-free-cash-flow (P/FCF) ratio of 14x, significantly lower than peers in the defense sector. This discount reflects underappreciation of its margin expansion potential and the compounding effects of its share repurchase program, which has been increased by $400 million to $534 million.

Risks and Mitigation

While the outlook is bullish, investors should consider potential headwinds. Tariff-related costs and supply chain disruptions could pressure margins, though Curtiss-Wright has already outlined mitigation strategies, including cost pass-through clauses and supplier diversification. Additionally, the stock's 7.74% post-earnings decline in after-hours trading suggests lingering skepticism about its valuation. However, the company's strong balance sheet—$3.9 billion in backlog, a 35.3% debt-to-equity ratio, and $278 million in Q4 2024 FCF—provides ample flexibility to navigate macroeconomic risks.

Investment Thesis and Timing

With the October 2025 earnings release approaching, Curtiss-Wright offers a strategic entry point for investors. The company's recent performance, coupled with analyst optimism and a favorable sector backdrop, suggests a re-rating is not only possible but likely. The $520 price target implies a 10% upside from current levels, with the potential for further gains if the October report exceeds raised guidance.

Conclusion

Curtiss-Wright's combination of earnings resilience, margin expansion, and strategic alignment with defense and energy megatrends makes it a standout in the aerospace and defense sector. As global tensions persist and budgets expand, the company is well-positioned to outperform. For investors seeking a high-conviction play with clear catalysts, Curtiss-Wright represents a compelling case for a strategic buy ahead of its October earnings release. The market's current undervaluation of its long-term potential offers a rare opportunity to capitalize on a company that is both a winner in its industry and a disciplined capital allocator.