We've been asking ourselves recently if the market has placed a fair valuation on Howmet Aerospace. Let's dive into some of the fundamental values of this large-cap Industrials company to determine if there might be an opportunity here for value-minded investors.
The Market May Be Overvaluing Howmet Aerospace's Earnings and Assets:
Howmet Aerospace Inc. provides advanced engineered solutions for the aerospace and transportation industries in the United States, Japan, France, Germany, the United Kingdom, Mexico, Italy, Canada, Poland, China, and internationally. The company belongs to the Industrials sector, which has an average price to earnings (P/E) ratio of 22.19 and an average price to book (P/B) ratio of 4.06. In contrast, Howmet Aerospace has a trailing 12 month P/E ratio of 35.1 and a P/B ratio of 5.84.
Howmet Aerospace's PEG ratio is 1.42, which shows that the stock is probably overvalued in terms of its estimated growth. For reference, a PEG ratio near or below 1 is a potential signal that a company is undervalued.
EPS Trend Sustained Primarily by Reducing the Number of Shares Outstanding:
| 2018 | 2019 | 2020 | 2021 | 2022 | 2023 | |
|---|---|---|---|---|---|---|
| Revenue (MM) | $6,778 | $7,098 | $5,259 | $4,972 | $5,663 | $6,422 |
| Revenue Growth | n/a | 4.72% | -25.91% | -5.46% | 13.9% | 13.4% |
| Operating Margins | 11% | 8% | 12% | 15% | 16% | 17% |
| Net Margins | 9% | 7% | 5% | 5% | 8% | 10% |
| Net Income (MM) | $642 | $470 | $261 | $258 | $469 | $640 |
| Net Interest Expense (MM) | $22 | $24 | $5 | -$259 | -$229 | $18 |
| Depreciation & Amort. (MM) | $314 | $295 | $279 | $270 | $265 | $271 |
| Earnings Per Share | $1.28 | $1.02 | $0.59 | $0.59 | $1.11 | $1.54 |
| EPS Growth | n/a | -20.31% | -42.16% | 0.0% | 88.14% | 38.74% |
| Diluted Shares (MM) | 503 | 463 | 439 | 435 | 421 | 415 |
| Free Cash Flow (MM) | $526 | -$125 | -$258 | $250 | $540 | $689 |
| Capital Expenditures (MM) | -$309 | $586 | $267 | $199 | $193 | $209 |
| Current Ratio | 1.87 | 1.42 | 2.21 | 2.18 | 2.12 | 2.14 |
| Total Debt (MM) | $6,330 | $5,940 | $5,075 | $4,232 | $4,162 | $3,989 |
| Net Debt / EBITDA | 3.72 | 4.99 | 3.83 | 3.45 | 2.85 | 2.61 |
Howmet Aerospace has weak operating margins with a positive growth rate, EPS growth achieved by reducing the number of outstanding shares, and a highly leveraged balance sheet. On the other hand, the company benefits from weak revenue growth and increasing reinvestment in the business and irregular cash flows.
