Why Did BWX Technologies Stock Drop Today?
Key Points
BWX Technologies beat analysts' projections soundly on both sales and earnings last night.
BWX also raised guidance for this year.
However, at 54x current year earnings, BWX stock costs too much.
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BWX Technologies (NYSE: BWXT), which manufactures components for nuclear power plants, tumbled 4.5% through 10:35 a.m. ET Tuesday.
The thing is, BWX Technologies just reported its Q3 earnings -- and the company beat on earnings!
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Heading into its Q3 report, analysts forecast BWX to earn $0.86 per share on $796.6 million in sales. In fact, BWX $1 per share, and sales topped $866.3 million. Then BWX went on to raise guidance as well!
Image source: Getty Images.
BWX Technologies Q3 earnings
Admittedly, the "$1" BWX earned was only a non-GAAP number; earnings as calculated according to generally accepted accounting principles (GAAP) were actually only $0.89 per share. Still, this was more than Wall Street predicted, and a 17% increase in earnings year over year.
CEO Rex Geveden boasted of "double-digit organic revenue growth and healthy free cash flow," plus "robust bookings, driven by large, multiyear special materials contracts" that have the company's backlog up 119% year over year at $7.4 billion -- promising years of strong sales to come.
Is BWX stock a buy?
"The demand environment for nuclear solutions in defense, clean energy, and medical markets is unprecedented," said Geveden, and even in the short term, the company remains "firmly on track to achieve our financial targets in 2025." Enough so, in fact, that management is raising guidance, and predicting it will earn between $3.75 and $3.80 (non-GAAP) this year.
So why is the stock down today? In a nutshell, because valuation -- that's why.
Priced above $205 a share, even earning $3.80 this year would value BWX stock at nearly 54x earnings -- and if the $3.80 is only a non-GAAP number, the "real" valuation could be even steeper. That's simply too high a price, and BWX stock remains a sell for me.
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Rich Smith has no position in any of the stocks mentioned. The Motley Fool has positions in and recommends BWX Technologies. The Motley Fool has a disclosure policy.
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