Howmet Aerospace Inc. (NYSE: HWM) is a well-rooted company in the aerospace and transportation industry of the United States and globally. Technological and innovation capabilities, and solid product offerings position it well to leverage high demand in the markets it serves.
This $13.7-billion company could be a strategic fit for investors willing to gain exposure to one of the largest and fastest growing industries in the United States. In the past five years, shares of HWM have surged 65.1%.
On TipRanks, Howmet has a Strong Buy consensus rating based on nine Buys and one Hold. HWM’s average price forecast of $40.44 reflects upside potential of 23.52% from the current level.
Also, a ‘9 out of 10’ score on TipRanks’ Smart Score rating system underpins the company’s potential to outperform the broader market.
Now, let us dig deep into Howmet’s key strengths and opportunities.
HWM Is Touching New Heights with Aerospace Business
Howmet generated nearly 60% of its total revenues from the aerospace business in 2021. The company has the technological know-how and state-of-the-art facilities spread across the globe to address the ever-evolving needs of the aerospace (commercial and defense) industry.
Its offerings include aerospace fastening systems, airframe structural components, jet engine components, and others. Lightweight, energy efficiency, low emissions, and less maintenance costs are competitive strengths of Howmet’s products.
It is worth noting that Howmet manufactures almost 90% of the parts required in aerospace engines. Also, the company’s patents (granted and pending), which designs, parts and processes, and long-term agreements ensure a steady flow of revenue, enhancing its investment appeal.
Its customer base includes big names like General Electric Company (NYSE: GE), The Boeing Company (NYSE: BA), and Raytheon Technologies Corporation (NYSE: RTX). In 2021, General Electric accounted for 13% of HWM’s third-party sales, while Boeing and Raytheon contributed 9% and 5%, respectively.
The aerospace market has recovered considerably from the downturns in the pandemic-hit years of 2020 and 2021. Travel demand is high in the commercial aerospace market, while build rates by airplane manufacturers are expected to expand impressively going forward.
On the defense front, the government’s initiatives to strengthen its forces are a tailwind. The demand for fasteners, bulkheads, and engine components is likely to rise with the increased production of F-35 combat aircraft.
Transportation Business Puts Howmet in the Fast Lane
The leading manufacturer of aluminum forged wheels generated 23% of 2021 revenues from its commercial transportation business. In 2021, Howmet’s market share was 75% in North America’s aluminum wheel market, 90% in Europe, and 25% in other international locations.
Howmet’s top wheel brands include Ultra ONE, Dura-Bright, and LvL ONE Finish. These products enhance fuel efficiency, help curtail emissions, and make buses and commercial trucks lighter. These wheels are made from advanced forging and digital manufacturing techniques.
Howmet benefits from a large scale of business, approximately 150 patents, and a large footprint globally. More than 50% of the company’s revenue from this business is tied to long-term agreements.
Positively Skewed Data on HWM
For 2022, Howmet forecasts revenues to be within the $5.56-$5.72 billion range and adjusted earnings to be $1.33-$1.39 per share. These projections are higher than $5 billion in revenues and adjusted earnings of $1.01 per share recorded in 2021.
The consensus estimate for Howmet’s second-quarter earnings is $0.33 per share, higher than the $0.22 per share recorded in the year-ago quarter.
Three days ago, Josh Sullivan of Benchmark upgraded his rating on HWM to Buy from Hold. His price target of $40 on the stock reflects 22.17% upside from current levels.
Another analyst, Philip Gibbs of KeyBanc, too, has a Buy rating on Howmet. The analyst has, however, lowered his price target to $41 from $42 (24.47% upside potential).
The company’s solid growth prospects have attracted a lot of retail investors in the last 30 days, evident from a 2.2% increase in the number of portfolios with exposure to HWM. Also, investor sentiment is Positive on the stock.
Sky is the Limit for HWM
The fundamentals of the aerospace and defense industry in the United States look bright. The commercial aerospace business is back on track after the pandemic, and the defense business is benefiting from the government’s focus on increasing defense outlays. According to a report, the U.S. aerospace and defense industry is forecast to grow to $550.8 billion by 2030 from $416.6 billion in 2020.
With its solid prospects, Howmet has the potential to boost value for investors interested in the aerospace and defense industry.
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