Is Woodward (WWD) a Buy After a Strong Q3 and Missed Guidance? Assessing Earnings Quality, Margin Expansion, and Forward-Looking Valuation Metrics

Woodward Inc. (NASDAQ: WWD) has delivered a standout Q3 2025 performance, with revenue surging 16.5% year-on-year to $995.3 million and GAAP earnings per share (EPS) of $2.23, exceeding estimates by 18.6%. These results underscore the company's ability to capitalize on robust demand in its core aerospace and industrial markets. However, the stock's investment case hinges on reconciling this short-term strength with a weaker-than-expected full-year 2026 guidance and a valuation that appears stretched relative to peers. This analysis evaluates Woodward's earnings quality, margin dynamics, and forward-looking metrics to determine whether the stock merits a "buy" rating.

Earnings Quality: A Tale of Two Segments

Woodward's Q3 results reflect divergent trends across its business segments. The Aerospace division, a key growth engine, benefited from price realization and higher sales volume, driving significant earnings growth despite inflationary pressures. This segment's operating margin expanded to 17% in Q3, up from 11.2% in the same period last year, a testament to the company's pricing power and operational efficiency.

Conversely, the Industrial segment faced headwinds, with earnings declining due to lower sales volume and an unfavorable product mix according to the report. This duality highlights Woodward's exposure to macroeconomic volatility: while aerospace demand remains resilient, industrial markets are more cyclical and sensitive to global economic shifts. For investors, the challenge lies in assessing whether the Aerospace segment's momentum is sustainable or if it reflects a temporary surge in demand.

Margin Expansion: Progress, but Risks Loom

Woodward's adjusted EBITDA of $198.2 million in Q3 exceeded estimates by $9.4 million, and its operating margin improvement was a bright spot. However, the company's 2026 guidance-pegged at a midpoint of $7.75 EPS- fell short of analyst expectations. This discrepancy raises questions about the durability of margin expansion.

Historically, Woodward has demonstrated a knack for beating earnings estimates, with a 100% EPS beat rate over the past two years. Yet, the 2026 guidance miss suggests potential over-optimism in its long-term projections. The company's fiscal 2025 report noted that Aerospace margins could reach 22–23% in 2026, but achieving this will depend on maintaining pricing discipline and managing strategic investments. If demand softens or inflationary pressures persist, margin compression could undermine these targets.

Valuation: Expensive Relative to Peers

Woodward's valuation appears elevated compared to both its peers and the broader aerospace and defense industry. As of November 18, 2025, the stock trades at a forward P/E ratio of 31.50 and a trailing P/E of 38.96, while its current P/E of 40.6x exceeds the peer average of 36.9x and the industry average of 36.1x. Analysts have set a consensus price target of $300.63, implying a 14.44% upside from the current share price of $262.70.

This premium valuation is justified in part by Woodward's strong Q3 performance and its leadership in high-margin aerospace technologies. However, it also reflects heightened expectations for future growth. If the company fails to meet its 2026 guidance or if broader economic conditions deteriorate, the stock could face downward pressure as multiples contract.

Conclusion: A Buy, but with Caution

Woodward's Q3 results demonstrate strong earnings quality and margin resilience, particularly in its Aerospace segment. The company's ability to consistently outperform EPS estimates and its strategic positioning in a high-growth industry are compelling arguments for a "buy" rating. However, the missed 2026 guidance and a valuation that exceeds peer averages introduce meaningful risks.

Investors should monitor two key factors: (1) the sustainability of aerospace demand amid potential macroeconomic slowdowns and (2) Woodward's ability to navigate margin pressures in its Industrial segment. For those with a medium-term horizon and a tolerance for volatility, the stock offers an attractive opportunity-but only if the company can deliver on its long-term margin and growth targets.