Howmet Aerospace Posts Record FY 2025 with Strong Guidance, Valuation Concerns Persist

What happened

Howmet Aerospace reported FY 2025 revenue of $8.3 billion, up 11% year-over-year, driven by a 12% surge in commercial aerospace sales, aligning with industry tailwinds highlighted in the DeepValue report. Adjusted EPS jumped 40% to $3.77, and free cash flow reached $1.4 billion, demonstrating improved profitability and cash conversion beyond previous expectations. The company deployed $700 million for share repurchases and reduced debt by $265 million, enhancing shareholder returns and balance sheet strength. In Q4 2025, revenue grew 15% with adjusted EBITDA margin expanding 330 basis points to 30.1%, though GAAP operating margin dipped slightly due to mix or costs. For 2026, management guides approximately 10% revenue growth and improved profit, but this optimism is tempered by already elevated stock valuations that may limit upside.

Implication

The strong FY 2025 results validate Howmet's exposure to commercial aerospace growth and management's execution, supporting the HOLD thesis from the DeepValue report. However, with P/E at 55 and EV/EBITDA at 38, the stock is richly priced, implying limited margin of safety despite improved fundamentals. Cash flow generation and share buybacks provide some downside protection, but any deviation from guidance or OEM production cuts could quickly erode investor confidence. The 2026 outlook suggests continued momentum, yet it may already be priced in, requiring careful monitoring of watch items like Boeing stabilization and titanium supply chain issues. Therefore, while the business quality is confirmed, prudent investors should await a better entry point or evidence of sustained outperformance before upgrading from HOLD.

Thesis delta

The FY 2025 performance reinforces the DeepValue thesis that Howmet is a high-quality business with strong aerospace tailwinds and improving cash flow. However, the elevated valuation multiples and DCF anchor of ~$135 versus the current ~$190 share price indicate that the stock remains overvalued, sustaining the HOLD rating. No material shift in thesis is warranted unless future results show margin expansion beyond guidance or a price correction improves the risk-reward profile.