Curtiss-Wright FY25: Defense Momentum, $15 EPS FY26

Thesis

Curtiss-Wright Corporation (NYSE: CW) delivered record financial performance across every metric in FY25 (December 2025): revenue $3.498B (+12.1%), operating margin 18.6% (+110bp), EPS $12.87 (+22%), FCF $553.7M (+14.5%), and order book $4.1B (+10%) with a book-to-bill consistently above 1.0x. The FY26 guidance confirmed the trajectory: EPS $14.70-$15.15 (+11-15%), FCF $575-$595M, and 6-8% organic sales growth with operating margin expanding to 18.9-19.2%.

Curtiss-Wright is a defense-industrial technology company — a more precise description than "aerospace and defense" because roughly 40% of revenue comes from two secular non-defense themes: commercial aerospace recovery and commercial nuclear renaissance. The core defense business (naval nuclear propulsion, defense electronics for C5ISR and submarines, ground defense) is growing on rising budgets and multi-year program commitments. But the commercial nuclear opportunity is differentiated: CW's reactor coolant pumps are the only pumps qualified for Westinghouse AP1000 reactors, and the global nuclear resurgence (new AP1000 orders in Bulgaria, Poland, India; US SMR development) creates a decade-long pipeline that does not depend on US defense appropriations.

The investment thesis rests on three mutually reinforcing drivers:

1. Defense electronics demand compounding: CW's Defense Electronics segment (C5ISR: Command, Control, Communications, Computers, Intelligence, Surveillance, Reconnaissance) serves the embedded computing requirements of modern platforms — submarines, UAVs, helicopters, and next-generation fighter systems. Q4 FY25 Defense Electronics grew 17% organically. The segment carries 25.9-27.5% operating margins — the highest in the portfolio. Multi-year procurement cycles provide backlog visibility 18-24+ months forward.

2. Commercial nuclear as a structural growth driver: Power and Process revenue (within Enablement Power segment) is guided to grow 12-14% in FY26 — the fastest segment. CW is the only supplier of reactor coolant pumps qualified for Westinghouse AP1000 reactors, which are being ordered in Europe and Asia. Small modular reactor (SMR) development also creates new demand for CW's nuclear-grade components and instrumentation. This is a 10-15 year secular growth vector independent of any single government's defense budget.

3. "Pivot to Growth" margin expansion: Management's strategic initiative is expanding operating margins while growing revenue — targeting above-market growth rates in high-margin segments while controlling costs. Operating margin expanded 110bp in FY25 to 18.6%, and is guided to 18.9-19.2% in FY26. At $3.5-3.8B in revenue, each 30bp of margin expansion generates ~$10M of incremental operating income.

FY25 Numbers vs FY24 (Annual, USD; December year-end)

FY25 marked the eighth consecutive year of dividend increases. Operating margin expansion reflects "Pivot to Growth" strategy mixing toward Defense Electronics and commercial nuclear while executing I&C Solutions and Ultra Energy acquisitions.

Segment Breakdown

Aerospace & Industrial (~35% of Revenue)

Serves commercial aerospace (airframe actuation, avionics, fluid controls) and industrial markets (general industrial vehicles, flow control). The commercial aerospace portion benefits from the global airliner delivery recovery (Boeing, Airbus backlogs extending through 2030).

FY25 performance: Full-year sales growth 4-5% with op margin approaching 18-19%. Q4 FY25 sales +5%, op margin 20.1% (Q4 typically the highest margin quarter). Commercial aerospace sales increased over 20% in Q4 FY25 on OEM deliveries and aftermarket strength.

FY26 guidance: Sales +5-7%, op income +11-14%, margin 18.3-18.5%. Commercial aerospace remains the primary growth driver; industrial vehicle market modestly headwinds but doesn't impair the segment.

Defense Electronics (~30% of Revenue)

The highest-margin and most strategically differentiated segment. Provides embedded computing systems, sensor interfaces, and signal processing for C5ISR applications: submarine acoustic processing, UAV mission computers, helicopter processing systems, and next-generation fighter electronics.

FY25 performance: Q4 FY25 +17% organic growth; operating margin 25.9%. Full-year margin improvement driven by favorable mix toward C5ISR programs and strong absorption. Order book for Defense Electronics powered by the Blackhawk helicopter program, Triton UAV, and submarine electronic warfare systems.

FY26 guidance: Sales +4-6%, op income +4-6%, margin 27.3-27.5%. Margins essentially flat at the 27% level — operating leverage is less dramatic at this mature margin level, but the absolute margin quality is exceptional.

ERP implementation: Management flagged an ERP implementation in Q2 FY25 that consumed management attention in the Defense Electronics segment; this is now largely past and the segment has re-accelerated.

Enablement Power / Naval & Power (~35% of Revenue)

Renamed and expanded through the Ultra Energy acquisition (closed December 31, 2024). This segment covers naval defense (submarine components, nuclear propulsion support), Power and Process (commercial nuclear reactor coolant pumps, instrumentation, subsea pumps), and contract support for Department of Energy programs.

FY25 performance: Q4 FY25 sales +21%, op income +13%. Naval Defense drove the growth on submarine program deliveries; Power and Process saw commercial nuclear uptick.

FY26 guidance: Sales +8-9%, op income +10-13% — meaningful margin expansion. Power and Process alone guides to +12-14% — the fastest-growing and most differentiated sub-segment.

Commercial nuclear moat: CW's AP1000 reactor coolant pumps have no qualified alternative supplier — they are sole-sourced for every AP1000 unit built globally. The AP1000 is the reference reactor design for new nuclear construction in the US, UK, Poland, Bulgaria, and India. Every new AP1000 order creates decades of pump supply, maintenance, and service revenue for CW. SMR development (NuScale, Kairos Power, X-energy) creates additional CW participation as the nuclear-grade supply chain expands.

Q4 FY25 Beat

Q4 2025 was particularly strong: total sales $947M (+15% YoY, 11% organic), operating margin 19.7%, EPS +16%, FCF $315M (+13%). All three segments grew. Commercial aerospace +20%, naval defense strong on submarine deliveries, Defense Electronics +17%. The Q4 strength is a confirming data point that the FY26 guidance is grounded in actual order book momentum, not aspirational projections.

Order book ended 2025 at $4.1B (+10% YoY), book-to-bill above 1.0x for multiple consecutive quarters. The order book provides 14+ months of revenue coverage at current run rates — unusually high visibility for an industrial company.

FY26 Framework

The EPS jump from $12.87 to $14.70-$15.15 (+$1.83-$2.28) is powered by revenue growth + margin expansion + buyback-driven share count reduction. CW repurchased $464.9M of shares in FY25; at the current pace, share count declines ~3-4% annually, providing persistent EPS uplift above earnings growth alone.

Multi-Year Strategic Position

Defense spending environment is a structural tailwind: NATO members are increasing defense budgets toward and beyond the 2% of GDP target. The US FY26 defense budget (continuing through) maintains prior appropriations levels. US Navy submarine programs (Virginia-class, Columbia-class SSBN) are the most important multi-decade contracts — CW's naval nuclear propulsion support and submarine electronics are embedded in programs that extend through the 2040s.

Commercial nuclear = 10-year earnings visibility: Beyond the AP1000 sole-source position, the nuclear energy renaissance creates new opportunities:

• SMR first-of-a-kind builds beginning 2028-2030 require nuclear-grade pumps, valves, and instrumentation
• US Department of Energy programs (nuclear microreactors for military installations) represent new government customers
• Westinghouse's announced AP1000 pipeline (Poland, Bulgaria, India, Ukraine) creates international revenue with 30-40 year maintenance commitments

Acquisition integration driving margin expansion: The WSC (2024), Ultra Energy (Dec 2024), and I&C Solutions acquisitions brought complementary capabilities at higher EBITDA margins than CW's legacy base. Management's track record on integration is strong: each acquisition has expanded operating margins within 2-3 years. The current $1.315B debt load is well-managed relative to $553M+ FCF — net leverage ~1.7x, below the 2.5-3.0x ceiling typical for defense industrials.

EPS compounding from buybacks + earnings: At $14.70-$15.15 FY26 EPS and ~37M diluted shares, buyback pace of $400-500M annually reduces the share base 3-4%/year. Combined with 11-15% operating earnings growth, CW's EPS can compound at 15-20%+ annually over a multi-year horizon — an exceptional rate for a company selling at a mid-teens P/E multiple.

Pivot to Growth execution: The 2023-2025 margin expansion from 17.0% to 18.6% to 18.9-19.2% (guided) demonstrates that management is delivering on the stated strategy. The next milestone is 19.5-20% operating margins — achievable by FY27-28 as commercial nuclear and Defense Electronics mix continues to grow.

Risks

• US defense budget continuing resolution risk: If Congress fails to pass a defense appropriations bill, continuing resolutions freeze new program starts and can delay orders. Ground Defense is already expected to be -4 to -6% in FY26 due to timing; extended CR could amplify this
• Supply chain: memory, rare earths: Management specifically flagged memory (DRAM, HBM) and rare earth elements as supply chain watch items for Defense Electronics — both are subject to export controls and China sourcing risks
• AP1000 order timing uncertainty: The commercial nuclear revenue ramp depends on AP1000 orders converting to construction starts. Revenue recognition timing for long-cycle nuclear contracts can create quarterly earnings variability
• Tariff exposure on China-origin components: ~20% of CW's supply chain is tariff-exposed (per Q1 FY25). Mitigation strategies (pricing, sourcing) are estimated to limit FY25 impact to ~$30M; FY26 exposure depends on tariff policy trajectory
• Acquisition integration risk: Ultra Energy (closed Dec 2024) and I&C Solutions are recent integrations; any operational disruption or customer relationship friction reduces expected synergies
• Valuation: At ~$27B market cap and ~18x FY26 EPS guidance, CW is priced for continued execution — any guidance miss on FCF or EPS compresses the multiple

Citations

• CW FY25 financial statements (drillr financial_statements; period_end 2025-12 FY)
• CW FY24 financial statements (drillr financial_statements; period_end 2024-12 FY)
• Q4 FY25 earnings call (~2026-02): Revenue $947M Q4 +15%; full-year EPS $12.87 +22%; FCF $554M; order book $4.1B +10%; FY26 guide EPS $14.70-$15.15, organic 6-8%, FCF $575-595M; margin 18.9-19.2%
• Q3 FY25 earnings call (~2025-10): Revenue +9%; op income +14%; backlog $3.9B +14% YTD; Defense Electronics margin 29.2%; raised FY25 guidance to $12.95-$13.20 EPS
• Q2 FY25 earnings call (~2025-07): Sales $877M +12%; EPS +21%; $400M buyback authorization increase; 14% dividend increase; book-to-bill >1.1x
• Q1 FY25 earnings call (~2025-04): EPS +42% Q1; book-to-bill 1.26; Defense Electronics Q1 record margin 27.5%; nuclear SMR development activity noted; tariff impact ~$30M FY25 estimate