Howmet Aerospace Inc. HWM is benefiting from strength in the commercial aerospace market. The strength in air travel continues, as it has throughout 2023, with wide-body aircraft demand picking up, supporting continued OEM spending. The pickup in air travel is positive for the company because the increased use of aircraft spurs spending on parts and products that HWM provides. It also encourages airlines to buy more aircraft, which again drives Howmet’s sales.
An expanding defense budget is a growth catalyst for Howmet. While the commercial aerospace market has been the company's major driver, the industry's defense side has also been witnessing positive momentum, cushioned by steady government support.
It is worth noting that in December 2023, U.S. President Joe Biden signed the U.S. defense policy bill that authorizes a record $886 billion in annual military spending, thereby increasing the nation's total national security budget by about 3%. Such improved budgetary provisions set the stage for Howmet by focusing on the defense business to win more contracts, which is likely to boost its top line.
HWM’s measures to reward its shareholders through dividend payments are noteworthy. In the first three months of 2024, Howmet paid out dividends worth $21 million and repurchased shares for $150 million. In September 2023, the company hiked its dividend by 25% to 5 cents per share (20 cents annually). Subject to its board’s approval, the company expects to hike the dividend rate by 40% to 7 cents in the third quarter of 2024.
In the year-to-date period, shares of the Zacks Rank #3 (Hold) company have gained 45.6% compared with the industry’s 18.1% growth.
Image Source: Zacks Investment Research
Howmet has been dealing with the adverse impacts of the high cost of sales. In 2023, the cost of goods sold jumped 16.3% year over year to $4.8 billion due to increasing input costs. Selling, general, administrative and other expenses also increased 15.6% year over year in the same period due to higher employment costs and legal fees. The trend continued in the first quarter of 2024, with the cost of goods sold rising 10.8% to $1.2 billion. Selling, general, administrative and other expenses grew 17.3% to $88 million in the quarter. Escalating expenses, if not controlled, might hurt the company’s bottom line in the quarters ahead.
Howmet’s international presence exposes the company to the risks of adverse currency fluctuations. This is because a strengthening U.S. dollar would hit profit margins unless offset by higher prices in locations outside the United States. Thus, adverse currency movements are worrisome for the company.
Stocks to Consider
Some better-ranked companies from the Construction sector are discussed below.
KB Home KBH presently sports a Zacks Rank #1 (Buy). It has a trailing four-quarter average earnings surprise of 18.4%. You can see the complete list of today’s Zacks #1 Rank stocks here.
The Zacks Consensus Estimate for KBH’s fiscal 2024 earnings has improved 3.8% in the past 60 days. The stock has risen 5.5% in the year-to-date period.
AECOM ACM presently carries a Zacks Rank of 2 (Buy) and has a trailing four-quarter earnings surprise of 3%, on average.
The consensus estimate for ACM’s fiscal 2024 earnings has increased 1.1% in the past 60 days. Shares of AECOM have gained 5.5% in the year-to-date period.
AAON, Inc. AAON presently carries a Zacks Rank of 2. AAON delivered a trailing four-quarter earnings surprise of 9.7%, on average.
The Zacks Consensus Estimate for AAON’s 2024 earnings has increased 0.5% in the past 60 days. Its shares have gained 17.8% in the year-to-date period.
Zacks Names "Single Best Pick to Double"
From thousands of stocks, 5 Zacks experts each have chosen their favorite to skyrocket +100% or more in months to come. From those 5, Director of Research Sheraz Mian hand-picks one to have the most explosive upside of all.
It’s a little-known chemical company that’s up 65% over last year, yet still dirt cheap. With unrelenting demand, soaring 2022 earnings estimates, and $1.5 billion for repurchasing shares, retail investors could jump in at any time.
This company could rival or surpass other recent Zacks’ Stocks Set to Double like Boston Beer Company which shot up +143.0% in little more than 9 months and NVIDIA which boomed +175.9% in one year.
AECOM (ACM) : Free Stock Analysis Report
KB Home (KBH) : Free Stock Analysis Report
AAON, Inc. (AAON) : Free Stock Analysis Report
Howmet Aerospace Inc. (HWM) : Free Stock Analysis Report
To read this article on Zacks.com click here.
The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of Nasdaq, Inc.
