Howmet Aerospace Inc.’s HWM shares have surged 96.1% in the past year, outpacing the industry and the S&P 500, which have returned 4.9% and 8.1%, respectively. The company has also outshone the Aerospace sector, which increased 8.8%, and its peers like GE Aerospace GE and Textron Inc. TXT, which have returned 19.2% and 13.7%, respectively, over the same time frame.

HWM Outperforms the Industry, S&P 500 & Peers

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Closing at $124.47 on Tuesday, the stock is trading below its 52-week high of $140.55 but significantly higher than its 52-week low of $62.80. The stock is trading close to its 50-day moving average and way above its 200-day moving average, indicating solid upward momentum and price stability. This reflects a positive market sentiment and confidence in the company's financial health and long-term prospects.

HWM Shares’ 50-Day and 200-Day SMA

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What’s Driving the Stock?

The strongest driver of Howmet’s business at the moment is the commercial aerospace market. The strength in air travel continues, as it has through 2024, with wide-body aircraft demand also picking up, supporting continued OEM spending. Pickup in air travel is generally positive for the company because the increased usage of aircraft spurs spending on parts and products that it provides and also encourages airlines to buy more aircraft, which again drives its sales.

Revenues from the commercial aerospace market increased 12.9% year over year in the fourth quarter of 2024, constituting 53% of its business. The sustained strength was attributed to new, more fuel-efficient aircraft with reduced carbon emissions and increased spare demand for engines. The Boeing Company BA is also anticipated to witness a gradual production recovery, particularly in the Boeing 737 MAX aircraft, with an end to its workers’ strike, which is likely to boost demand for Howmet’s products in the market.

Howmet is also benefiting from positive momentum of the defense business, cushioned by steady government support. HWM has been experiencing robust orders for engine spares for the F-35 program and other legacy fighters. Revenues from the defense aerospace market increased 22% year over year in the fourth quarter, constituting 16% of the company’s business.

It's worth noting that in August 2024, the U.S. Senate Committee on Appropriations approved the fiscal year 2025 Defense Appropriations Act, which provides $852.2 billion in total funding. This reflects a 3.3% increase over the approved funding during fiscal 2024.  Such improved budgetary provisions set the stage for Howmet, which is focused on the defense business to win more contracts, which is likely to boost its top line.

Driven by strength across its businesses, Howmet expects to generate revenues in the range of $7.93-$8.13 billion in 2025, indicating year-over-year growth of 8% at the midpoint.

The company also remains committed to rewarding shareholders handsomely through dividend payouts and share buybacks. In 2024, Howmet paid dividends worth $109 million and repurchased shares for $500 million. In January 2025, the company hiked its dividend by 25% to 10 cents per share (annually: 40 cents). Also, in July 2024, its board approved an increase in the share repurchase program by $2 billion to $2.487 billion of its common stock. Exiting January 2025, HWM’s total share repurchase authorization available was $2.15 billion.

Few Near-Term Concerns

Howmet has been witnessing weakness in the commercial transportation market. The company expects demand in the commercial transportation markets served by the Forged Wheels segment to remain soft till the second half of the year due to lower OEM builds. Production issues at Boeing due to quality control challenges are expected to adversely impact narrow-body and wide-body production rates in the near term.

HWM also operates in the highly competitive aerospace and defense markets, comprising well-recognised providers of highly engineered products. As one of its peers, GE Aerospace serves as a leading designer, developer and producer of jet engines, components and integrated systems for military, commercial and business aircraft. Textron, another peer, is a global multi-industry company that manufactures aircraft, automotive engine components and industrial tools. The company also offers solutions and services for aircraft, fastening systems, and industrial products and components.

HWM’s Earnings Estimate Revision

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The Zacks Consensus Estimate for Howmet’s 2025 earnings has increased 1.6% to $3.25 per share over the past 60 days, indicating year-over-year growth of 20.8%. The consensus mark for first-quarter 2025 earnings increased 4.1% to 77 cents per share, indicating a year-over-year increase of 35.1%. (Find the latest EPS estimates and surprises on Zacks Earnings Calendar.)

Valuation Remains an Overhang

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Howmet is trading at a forward 12-month price-to-earnings (P/E) ratio of 36.07X, higher than the industry average of 23.70X. This elevated valuation could make the stock vulnerable to further pullbacks if market sentiment sours. In comparison with HWM’s valuation, GE Aerospace and Textron are trading at 32.64X and 10.44X.

Final Take on Howmet

Solid momentum across the commercial and defense aerospace markets, supported by impressive build rates, spare demand for engines and increased defense budget, positions Howmet favorably for strong growth in the quarters ahead. Built on a sound liquidity position, HWM’s shareholder-friendly policies also add to its appeal. 

Despite its expensive valuation, positive analyst sentiment and robust growth prospects indicate it is the right time for potential investors to bet on this Zacks Rank #2 (Buy) company. You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

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The Boeing Company (BA) : Free Stock Analysis Report

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Textron Inc. (TXT) : Free Stock Analysis Report

Howmet Aerospace Inc. (HWM) : Free Stock Analysis Report

This article originally published on Zacks Investment Research (zacks.com).

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