Shares of Howmet Aerospace Inc. HWM have been showing impressive gains of late, trading close to its 52-week high of $115.38. The stock closed at $113.65 (on Friday), 1.5% below the highest point. In the past six months, shares of the advanced engineered solutions provider have surged 41.7%, outpacing the S&P 500’s and sub-industry’s growth of 14.9% and 2.5%, respectively.
The company has also outperformed other industry players like L3Harris Technologies, Inc. LHX and Leidos Holdings, Inc. LDOS, which have returned 18.2% and 35.9%, respectively, over the said time frame.
HWM Outperforms Industry & S&P 500
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HWM stock is trading above both its 50-day and 200-day moving averages, indicating solid upward momentum and price stability. This reflects a positive market sentiment and confidence in the company's financial health and long-term prospects.
HWM Shares Trading Above 50-Day and 200-Day SMA
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Factors in Favor
Howmet has been benefiting from solid momentum in the commercial aerospace market. The strength in air travel continues, with wide-body aircraft demand picking up, thereby supporting continued OEM spending. Pickup in air travel has been a positive for the company as the increased usage of aircraft spurs spending on parts and products that it provides. Solid demand for air travel is also encouraging airlines to purchase more aircraft, which is again driving its sales.
In the third quarter of 2024, revenues from the commercial aerospace market increased 17% year over year, constituting 52% of the company’s business. The sustained strength was attributed to new, more fuel-efficient aircraft with reduced carbon emissions and increased spare demand for engines. Boeing is also anticipated to witness a gradual production recovery with an end to its workers’ strike, which is likely to boost demand for HWM’s products in the market.
Expanding defense budget remains another growth catalyst for Howmet. While the commercial aerospace market has remained the major driver for the company, the defense side of the industry has also been witnessing positive momentum, cushioned by steady government support. HWM has been witnessing robust orders for engine spares for legacy fighters. In the third quarter, revenues from the defense aerospace market increased 15% year over year, constituting 16% of the company’s revenues.
It’s worth noting that the $886 billion defense policy bill, passed by the U.S. Government in December 2023, increased the nation's total national security budget by about 3%. Such improved budgetary provisions set the stage for Howmet's long-term growth, which remains focused on grabbing more defense contracts.
Howmet’s sound liquidity position is an added strength. Exiting the third quarter, the company’s cash equivalents and receivables were $1.2 billion. It generated net cash of $818 million from operating activities in the first nine months of 2024, much higher than $443 million generated in the year-ago period. Howmet also generated a healthy free cash flow of $599 million in the first three quarters of the year.
The company also remains focused on rewarding shareholders through dividend payouts and share repurchases. For instance, in the first nine months of the year, it paid dividends worth $76 million and repurchased shares for $310 million. In July 2024, the company hiked its dividend by 60% to 8 cents per share (annually: 32 cents). In the same month, its board also approved an increase in the share repurchase program by $2 billion to $2.487 billion of its common stock.
Earnings Estimate Revision
The Zacks Consensus Estimate for Howmet’s 2024 earnings has increased 2% to $2.61 per share over the past 60 days, indicating year-over-year growth of 41.9%. The consensus mark for 2025 earnings is pinned at $3.12 per share, indicating year-over-year increase of 19.4%.
Find the latest EPS estimates and surprises on Zacks Earnings Calendar.
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Better-Than-Industry Returns
Howmet’s trailing 12-month return on equity (ROE) is indicative of its growth potential. ROE for the trailing 12 months is 24.50%, much higher than the industry’s 11.73%. This reflects the company’s efficient usage of shareholder funds.
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Return on Assets is 9.72%, ahead of the industry’s 3.10%, indicating that the company has been utilizing its assets efficiently to generate returns.
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Stock Valuation
Despite the positives, Howmet’s lofty valuation remains a concern. The stock is trading at a forward 12-month price-to-earnings (P/E) ratio of 37.25X, higher than the industry average of 22.24X. Also, it is overvalued compared with its peer, General Dynamics Corporation GD, which is trading at 19.54X. This elevated valuation could make the stock vulnerable to further pullbacks if market sentiment sours.
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Our Final Take
Robust momentum across commercial and defense aerospace markets, driven by solid build rates, wide-body aircraft recovery and increased defense budget, positions Howmet favorably for strong growth in the quarters ahead. Given the strength across most of its served markets, HWM has built a sound liquidity position that supports its shareholder-friendly policies.
Despite its expensive valuation, positive analyst sentiment and robust growth prospects indicate it is the right time for potential investors to bet on this Zacks Rank #2 (Buy) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.
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The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
