Howmet's Defense Surge Meets Stretched Valuation Reality

What happened

Howmet Aerospace is experiencing a notable surge in defense sales, driven by robust demand for F-35 and legacy fighter programs amid new military funding, as highlighted in a recent Zacks article. This defense momentum aligns with the company's diversified aerospace exposure, but the DeepValue report underscores that Howmet's stock already reflects much of its growth, with elevated multiples like a P/E of 55 and EV/EBITDA of 38. While the defense boost could provide near-term earnings support, it does not fully offset risks such as Boeing production variability and titanium sourcing challenges that could pressure margins. The report's HOLD stance remains justified, as the valuation lacks a margin of safety with a DCF anchor of $135 versus the current $190 stock price. Investors should view this defense strength as a reinforcing factor rather than a game-changer, given the persistent overvaluation and execution risks.

Implication

The defense sales growth may temporarily buoy earnings, but it fails to justify Howmet's stretched multiples, which already price in optimistic scenarios. Persistent headwinds like Boeing's production issues and geopolitical titanium risks could erode gains, emphasizing the need for disciplined monitoring of cash flow and OEM production trends. While the company's vendor-qualification moat and solid balance sheet offer some durability, the lack of a margin of safety suggests waiting for a better entry point or clearer upside evidence. Any investment decision should hinge on sustained outperformance in cash generation and resolution of supply-chain constraints, rather than short-term defense spikes. Overall, this development reinforces the existing HOLD recommendation, urging patience amid elevated uncertainty.

Thesis delta

The news of defense sales strength introduces a positive near-term catalyst but does not materially shift the core thesis of a stretched valuation and reliance on commercial aerospace recovery. It underscores the company's diversification benefits but fails to mitigate key risks like Boeing production cuts or titanium tariffs, keeping the HOLD rating intact. Investors should watch for consistency in defense momentum and its impact on cash flows before considering an upgrade.