Woodward: Dominant, Sole-Source Provider at FCF Inflection Point

Bertie Thomson of Brown Advisory presented his investment thesis on Woodward (US: WWD) at Wide-Moat Investing Summit 2021.

Thesis summary:

Woodward is a dominant aerospace and industrial component manufacturer with significant self-help. The company benefits from monopoly-esque sole source positions on a variety of aerospace and industrial platforms, an interlocking fortress of economic moats, and a razor-razorblade business model that fosters pricing power. 

Bertie expects the company’s return and free cash flow profiles to inflect materially as the end-markets recover and the company harvests aftermarket cash flows from the installed base. This improvement should be underpinned by a capex holiday following significant investment from 2013-2018 and the company’s True North operational efficiency program. 

Bertie considers Woodward to be materially undervalued and expects a mid-teens annual return over the next five years (using 5% FCF/EV exit yield).

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About the instructor:

Bertie Thomson, CFA, is a portfolio manager within the global equity team at Brown Advisory, an independent investment management firm. Prior to joining Brown Advisory in October 2015, Bertie spent thirteen years at Aberdeen Asset Management where he was most recently a Senior Investment Manager in the pan-European equity team.

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