Curtiss-Wright: Getting Compelling Again

Summary

• Contrary to many stocks, the valuation multiples of Curtiss-Wright have only compressed since the outbreak of the pandemic.
• Shares are still down a third from the peak while the operational impact in terms of sales and earnings is limited to single digits.
• I like the investment thesis again, looking to initiate a position again this upcoming week.
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Curtiss-Wright (NYSE:CW) is a long term value creator that has operated a bit under the radar. With its largest acquisition to-date announced in September 2020, I wrote an article on the company and stock and concluded to initiate a small position.

Not much has happened since that day in September on the corporate front, although investors did see a big 25% jump in the time frame of just 3 months, only for shares to give up gains of nearly 20% again, with shares having moved back towards the $100 mark again. Solid third-quarter results have only solidified the investment case, in combination with some dollar weakness, leading me to like the investment case here.

The Thesis

Curtiss-Wright is a $2.5 billion global diversified industrial company which is active in defense, commercial aerospace, industrial and power generation activities. Defense is the largest segment which is responsible for 50% of sales, general industrial is responsible for a fifth of sales, with power generation and commercial aerospace each responsible for about 15% of sales.

The company has grown to become this size as a result of a mix of organic growth and acquisitions, which has been a key driver pushing shares up from just $30 in 2012 to a high of $150 around the start of 2020. This was driven by reported earnings at around $7.25 per share in 2019 which meant that shares traded around 20-21 times earnings, while leverage was less than reported EBITDA.

With the company ahead of the pandemic guiding for flattish results in 2020, I saw little reason to buy into that valuation, as shares collapsed alongside the market to just $70 in March, before recovering to $95 in September when I last reviewed the investment case.

While first quarter results for 2020 still rose 4%, second quarter sales (released

Analyst’s Disclosure:I/we have no positions in any stocks mentioned, but may initiate a long position in CW over the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

Looking to establish a position again in the low $100s.