Howmet's Aerospace Demand Surge Reinforces Growth, But Valuation Remains a Hurdle

What happened

A Zacks article questions if Howmet Aerospace can sustain growth amid surging commercial aerospace demand, highlighting steady revenue from rising air travel and aircraft programs. The DeepValue master report confirms this tailwind, with management guiding higher 2025 sales, EPS, and operating cash flow due to strong engine spares and OEM ramp-ups like Airbus A320 and CFM LEAP. However, the report critically notes that the stock's valuation is stretched, with a P/E of 55 and EV/EBITDA of 38, pricing in much of this optimism and offering a limited margin of safety versus a DCF anchor of $135. Key risks include Boeing production variability, titanium sourcing issues, and tariff pressures that could impact mix and volumes, despite Howmet's vendor-qualification moat and solid balance sheet. Overall, the news echoes the report's positive industry setup but does not mitigate the core concern that investors are overpaying for already anticipated growth.

Implication

The sustained commercial aerospace demand supports Howmet's revenue growth, but at current elevated multiples, the stock lacks a sufficient margin of safety for new investments. Investors must closely monitor Boeing's production stabilization and titanium supply chain developments, as any setbacks could erode earnings and justify a downgrade. Howmet's improving free cash flow and investment-grade balance sheet provide durability, yet the high valuation metrics suggest the market has already discounted most positive scenarios. For a shift to BUY, evidence of consistent cash flow outperformance or resolution of OEM production risks is necessary, while deterioration in these areas could trigger a SELL. Patience is advised to await a better entry point or clearer signs of upside beyond current assumptions.

Thesis delta

The new article reinforces the DeepValue report's identification of strong commercial aerospace tailwinds, confirming management's growth guidance for 2025. However, it does not address the valuation overhang or key risks like Boeing production and titanium sourcing, leaving the core thesis unchanged: Howmet is a quality business with stretched multiples, warranting a HOLD until better entry conditions emerge.