Are Investors Too Optimistic On Howmet Aerospace Stock?

The shares of Howmet Aerospace (NYSE: HWM) have surpassed pre-Covid levels in the past few months despite an uncertain travel demand and rising coronavirus cases due to new variants. The company manufactures advanced jet engine components, fastening systems, and structural parts for aerospace and defense applications. Commercial aerospace, defense aerospace, commercial transportation, and power generation are key markets to which the company caters. In 2019, the commercial aerospace and defense aerospace markets contributed 59% and 13% of the total revenues, respectively. Notably, revenue contribution from the commercial aerospace sector declined by 38% (y-o-y) in 2020 and the sluggish demand environment has extended into 2021. Considering the high current P/S multiple and the pandemic’s impact on the travel & tourism sector, we believe that the stock has reached its near-term potential. We highlight the historical trends in revenues, earnings, and valuation multiple in an interactive dashboard analysis, Buy Or Fear Howmet Aerospace Stock?

A quick look at financial and operating metrics

The company’s revenues declined by 26% from $7.1 billion in 2019 to $5.3 billion in 2020, as the demand from commercial aerospace and commercial transportation sectors plummeted with a fall in passenger numbers. Thus, the net margins observed a 1.6% contraction from 6.6% in 2019 to 5% in 2020 – leading to a sizable decline in operating cash flows. Per Q2 2021 filings, the company expects revenues to observe low double-digit growth in the latter half of the year – assisted by improving market conditions. However, the revenue contribution by the commercial aerospace sector fell to 40% in the second quarter, a sizable drop from 59% in 2019.

Stock performance of Howmet Aerospace’s key customers

Howmet’s key customers, General Electric Company, Raytheon Technologies Corporation, and The Boeing Company account for around 11%, 9%, and 8% of the total revenues, respectively. Due to the pandemic’s impact on the travel & tourism industry, demand for commercial jets and associated parts & structures remains low. Thus, the shares of Raytheon and Boeing are trading 11% and 30%, respectively, below pre-Covid levels. Moreover, Spirit AeroSystems stock, a Boeing key supplier, remains 38% below its February 2020 level – a contrast to Howmet Aerospace.

Is there a better pick over Boeing? Boeing Stock Comparison With Peers summarizes how BA compares against peers on metrics that matter. You can find more such useful comparisons on Peer Comparisons.

See all Trefis Price Estimates and Download Trefis Data here

What’s behind Trefis? See How It’s Powering New Collaboration and What-Ifs For CFOs and Finance Teams | Product, R&D, and Marketing Teams