Why Woodward, Inc. (WWD) Is a Strong Pick Among Mid-Cap Defense Stocks

Woodward, Inc. (NASDAQ: WWD), a leader in aerospace and industrial systems, has emerged as a compelling mid-cap defense stock amid rising global military spending and strategic acquisitions. With a market cap of $9.95 billion as of April 2025, the company sits squarely in the mid-cap range, offering investors exposure to a sector primed for growth. Analysts have taken notice, assigning a Buy rating to WWD with an average upside potential of 15.28%, positioning it among the top 10 mid-cap defense stocks. But how does WWD stack up against peers, and is now the time to buy?

Q1 2025 Results: Defense Drives Growth Amid Mixed Performance

Woodward’s first-quarter results revealed a tale of two segments. While net sales fell 2% YoY to $773 million, the Aerospace division surged 7%, fueled by 21% growth in Defense OEM sales and an 8% rise in Defense Aftermarket demand. This resilience in defense systems contrasted sharply with the struggling Industrial division, where Transportation sales plunged 33% due to softness in China’s natural gas truck market.

Despite the Industrial drag, WWD’s adjusted EPS of $1.35 beat estimates by 18%, reflecting cost discipline and margin improvements in Aerospace. The segment’s operating margin expanded 200 basis points to 19.2%, while full-year guidance remains intact, with Aerospace expected to grow 6–13% in 2025.

Defense Sector Tailwinds: Budgets, Acquisitions, and Geopolitics

The defense sector’s growth is being supercharged by U.S. and European military spending increases. The proposed $1 trillion FY2026 U.S. defense budget—a 12% YoY jump—prioritizes advanced systems like the F-47 fighter jet and shipbuilding programs, directly benefiting WWD’s aerospace and actuation technologies.

Strategically, WWD’s December 2024 acquisition of Safran Electronics & Defense’s North American actuation business—set to close mid-2025—adds critical HSTA systems (for aircraft stabilization) and long-term contracts. Analysts at Citi highlight this move as a “game-changer,” bolstering WWD’s defense portfolio and reducing reliance on cyclical Industrial markets.

Risks and Challenges: Cash Flow and China Exposure

Not all is smooth sailing. WWD’s operating cash flow dropped 26% YoY, and free cash flow turned negative, reflecting higher capital expenditures and weak Industrial performance. Additionally, the company’s exposure to China’s volatile natural gas truck market remains a risk, with Transportation sales down 33% YoY.

Analysts caution that supply chain bottlenecks and labor costs could pressure margins further. Meanwhile, geopolitical shifts—such as U.S. budget priorities shifting toward shipbuilding—could divert funding from WWD’s core aerospace markets.

The Analysts’ Take: Buy with a Long View

Despite these hurdles, consensus sentiment remains bullish. WWD’s stock has risen 16% YTD in 2025, outperforming broader markets. Institutional investors, including 35 holders as of Q4 2024, appear confident in the company’s defense-driven growth narrative.

The 15.28% upside potential cited by analysts hinges on execution of the Safran deal, margin expansion in Aerospace, and stabilization in Industrial segments. While WWD trails faster-growing AI defense stocks, its tangible contracts and alignment with geopolitical spending priorities make it a safer bet for investors seeking stable returns.

Conclusion: WWD’s Defense Bet Pays Off

Woodward, Inc. is a standout mid-cap defense stock due to its strategic acquisitions, strong defense demand tailwinds, and a $1 trillion U.S. budget boost. Despite near-term cash flow challenges and China exposure, the company’s focus on high-margin aerospace systems and geopolitical priorities positions it for sustained growth.

With a Buy rating, a 15.28% upside target, and a market cap just under $10 billion—within the mid-cap sweet spot—WWD offers a balanced risk/reward profile. Investors seeking exposure to the defense sector should take note: WWD is not just a mid-cap player but a leader in a sector set to soar.

In a world where defense spending is a geopolitical constant, WWD’s fundamentals align with the trends that matter most.