Summary
- Analysts set low expectations for Q2 earnings and revenues. Were they too low that it made Curtiss-Wright easy to beat thus driving up the share price?
- Defense is an essential industry; nearly half of Curtiss-Wright's sales come from defense and aerospace/aviation sales but it is not enough to replace falling sales and margins in other sectors.
- Retail investors need to be cautious but there may be one shining opportunity that will take the shares to the target-price others set.
Low Expectations Are Driving Up The Price
A slew of analysts, in anticipation of the early August Q2 '20 earnings report from Curtiss-Wright (CW), offered relatively safe and low expectations. The consensus was if CW beats expectations the share price might top $125. The share price climbed from ~$80 following a solid Q1 '20 report in March to about $90 throughout much of the second quarter.
Sure enough, CW beat expectations on EPS by three cents ($1.31) and revenues ($550M) by $7.71M. The share price popped from July 31 at $88.13 to close at $97 on August 4. It is still well-under the 52-week high of $149 per share. CW pays a small dividend (.76% FWD), which stands at the low-end paid by companies in the defense industry. Its market cap hovered around $3.7B for years. It was about that Jim Cramer recommended CW in 2015 with the shout-out, "Don't Miss Today's Strong And Under The Radar Stock: Curtiss-Wright." In 2017, another analyst urged a Buy for "This Under-The-Radar Underwater Defense Company." The market cap tops $4B since Q2 reporting.
Today, CW designs, manufactures, repairs, and replaces precision components. CW engineers products and services in defense and aerospace/commercial aviation accounting for nearly half its sales; other revenues are generated from the commercial/industrial sector and power generation markets. It is a leader in embedded computing discussed below.
While I gleam on the defense industry, I vacillate to outright recommending CW. The actual numbers and explanations reported are giving me pause. There are other considerations outweighing the expectations, too. I hear Amelia Earhart whispering, "Anticipation, I suppose, sometimes exceeds realization." And we know how tragically that ended for her.
Do Not Buy Or Sell Unless…
Curtiss-Wright is characterized as "under the radar" for so long it makes the stealth B-2 bomber seem to be tabloid fodder. That changed with the solid Q1 '20 report. The Wall Street rate for CW became "Very Bullish." Hedge funds jump into and out of the stock over the past three years with near the same volatility the share price moves. The overall Momentum, however, languishes with a D Factor Grade and a "Bearish" Quant Rating.
