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HWM

Howmet Aerospace Stock Drops 3.8% – Is the Valuation Justified?

Standing out among the Street's worst performers today is Howmet Aerospace, a metal fabrication company whose shares slumped -3.8% to a price of $113.8, 7.89% below its average analyst target price of $123.55.

The average analyst rating for the stock is buy. HWM underperformed the S&P 500 index by -3.0% during today's afternoon session, but outpaced it by 88.7% over the last year with a return of 120.5%.

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 generally includes cyclical companies -- with the exception of conglomerates whose business may span several industries. Cyclical companies experience higher sales during periods of economic expanision, and worsening outlooks during recessions.

Howmet Aerospace's trailing 12 month P/E ratio is 43.8, based on its trailing EPS of $2.6. The company has a forward P/E ratio of 35.7 according to its forward EPS of $3.17 -- which is an estimate of what its earnings will look like in the next quarter. As of the third quarter of 2024, the average Price to Earnings (P/E) ratio for US industrials companies is 25.42, and the S&P 500 has an average of 29.3. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.

To deepen our understanding of the company's finances, we should study the effect of its depreciation and capital expenditures on the company's bottom line. We can see the effect of these additional factors in Howmet Aerospace's free cash flow, which was $682.0 Million as of its most recent annual report. This represents the amount of money that is available for reinvesting in the business, or for paying out to investors in the form of a dividend. With its strong cash flows, HWM is in a position to do either -- which can encourage more investors to place their capital in the company. Over the last four years, the company's free cash flow has been growing at a rate of 23.4% and has on average been $80.5 Million.

Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (its share price divided by its book value). The book value refers to the present value of the company if the company were to sell off all of its assets and pay all of its debts today - a number whose value may differ significantly depending on the accounting method. Howmet aerospace's P/B ratio is 10.42 -- in other words, the market value of the company exceeds its book value by a factor of more than 10, so the company's assets may be overvalued compared to the average P/B ratio of the Industrials sector, which stands at 3.2 as of the third quarter of 2024.

Since it has a higher P/E ratio than its sector average, a higher than Average P/B Ratio, and positive cash flows with an upwards trend, Howmet Aerospace is likely overvalued at today's prices. The company has poor growth indicators because of an inflated PEG ratio and strong operating margins with a positive growth rate. We hope you enjoyed this overview of HWM's fundamentals. Be sure to check the numbers for yourself, especially focusing on their trends over the last few years.

The above analysis is intended for educational purposes only and was performed on the basis of publicly available data. It is not to be construed as a recommendation to buy or sell any security. Any buy, sell, or other recommendations mentioned in the article are direct quotations of consensus recommendations from the analysts covering the stock, and do not represent the opinions of Market Inference or its writers. Past performance, accounting data, and inferences about market position and corporate valuation are not reliable indicators of future price movements. Market Inference does not provide financial advice. Investors should conduct their own review and analysis of any company of interest before making an investment decision.

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