Howmet's Robust Q4 Performance Confirms Quality, but Valuation Still Stretched

What happened

Howmet Aerospace delivered strong Q4 results with 15% revenue growth and 29% EBITDA growth, driven by broad-based demand in commercial aerospace. This performance has fueled a 24% stock surge, pushing valuations to elevated levels, with the article noting a 29.1x EV/EBITDA and the report highlighting a P/E of 55 and EV/EBITDA of 38. The DeepValue report underscores Howmet's durable moat from vendor qualification and positive industry tailwinds, including Airbus ramp-ups and higher engine spares demand, supported by management's guidance for increased 2025 sales and cash flow. However, both sources caution that these optimistic expectations are largely priced in, with a DCF anchor of ~$135 significantly below the current ~$190 stock price, indicating limited margin of safety. Risks such as Boeing production variability and titanium sourcing issues add near-term uncertainty, reinforcing the need for vigilance despite the operational strength.

Implication

Howmet's premium valuation, at over 29x EV/EBITDA and 55x P/E, leaves little room for error, meaning any operational missteps or industry headwinds could pressure the stock. The company's exposure to aerospace tailwinds and improving free cash flow is attractive, but investors must monitor Boeing production stability and titanium supply risks that could impact mix and volumes. Near-term catalysts like the CAM acquisition offer incremental upside, but capital intensity must remain low to avoid diluting returns. A downgrade to SELL may be warranted if production cuts or margin deterioration occur, while an upgrade to BUY would require consistent outperformance on cash generation or a valuation pullback. Overall, the investment case hinges on balancing quality with price discipline, favoring a wait-and-see approach in the current environment.

Thesis delta

The new article does not materially shift the investment thesis; it reinforces the DeepValue report's conclusion that Howmet is a high-quality business with solid growth prospects but an overvalued stock. The acknowledgment of strong results and continued valuation concerns aligns with the existing HOLD rating, emphasizing that no new catalysts justify a change in stance unless operating leverage or external risks evolve.