Howmet's Margin Expansion Highlights Operational Strength Amid Aerospace Tailwinds, But Valuation Concerns Linger

What happened

Howmet Aerospace has reported margin expansion despite rising input costs, driven by effective pricing strategies and operational efficiencies. This performance aligns with strong commercial aerospace tailwinds, including increased demand for engine spares and higher production rates from Airbus and Boeing, as noted in the DeepValue report. Management has raised its 2025 EBITDA guidance, signaling confidence in sustained profitability amid industry growth. However, the stock's elevated valuation multiples—such as a P/E of 55 and EV/EBITDA of 38—already price in much of this optimism, limiting upside potential. Critical risks, including Boeing's production variability and geopolitical tensions affecting titanium supply, could undermine future margin sustainability and are not fully addressed by the positive news.

Implication

The margin improvement and higher guidance reinforce Howmet's strong positioning in the aerospace cycle, supporting near-term earnings growth and management's execution capabilities. Pricing power demonstrates resilience against cost pressures, but this may not be sustainable if demand softens or competitive dynamics intensify. Valuation remains a significant headwind, with the stock trading well above intrinsic value estimates, offering limited margin of safety for new investments. Investors must closely monitor Boeing production stabilization and titanium sourcing developments, as these are critical to the thesis and could trigger downgrades if they worsen. Overall, while business fundamentals are solid, the current price justifies a hold stance, awaiting either a better entry point or evidence of upside to growth and cash conversion assumptions.

Thesis delta

The news confirms the company's operational strength and alignment with aerospace tailwinds, supporting the positive aspects of the existing thesis. However, it does not alleviate the stretched valuation or address core risks like Boeing production issues and titanium supply constraints, thus reinforcing the HOLD recommendation without a material shift.