Baird: With Its Segment Aligned, Curtiss-Wright Looks Poised For Growth

Curtiss-Wright Corp. CW, a manufacturer of precision components and engineered products for the industrial markets, including aerospace, defense and power generation, is well-positioned for 2018, according to a sell-side analyst.

The Analyst

Baird analyst Peter Arment initiated coverage of Curtiss-Wright with an Outperform rating and $149 price target. Over the long term, the analyst projects the shares will top $170.

The Thesis

The organic growth at Curtiss-Wright is accelerating going into 2018, with all three business segments expected to show positive growth, Arment said in a Monday note. (See Arment's track record here.) Synchronized growth led by the defense segment is enabling the company to remain on a path of higher operating margin performance and free cash flow generation, the analyst said. 

Defense end markets, where Curtiss-Wright derives 39 percent of its revenues, are returning to mid-single digit CAGR over the next few years, Arment said. Continued positive inflection in the DoD budget will help strengthen demand for the company's defense portfolio, especially in embedded computing products and pumps and valves for naval platforms, the analyst said. 

"Management remains committed to achieving 'top quartile performance metrics,' which we believe will translate into further margin gains as organic growth improves coupled with CW's ongoing lean initiatives." 

Production on the 2015 China direct order for reactor coolant pumps is accelerating through 2019, according to Baird. Once the Sanman-1 nuclear power plant goes online in early 2018, Baird projects ncremental order flow from China that supports volumes beyond 2020.

Baird expects Curtiss-Wright to generate $1.1 billion in free cash flow over the 2018-2020 period, with the company targeting free cash flow conversion of 135-142 percent in 2017. This will help return cash to shareholders through dividends and buybacks, Arment said. 

The Price Action

Shares of Curtiss-Wright have been on a broader uptrend since mid-May. Year-to-date, the shares are up over 25 percent.

At the time of writing, the shares were adding 1.74 percent to $123.11.

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