One of Wall Street's biggest winners of the day is Howmet Aerospace, a metal fabrication company whose shares have climbed 3.5% to a price of $126.32 -- near its average analyst target price of $125.78.
The average analyst rating for the stock is buy. HWM outperformed the S&P 500 index by 2.0% during today's afternoon session, and by 103.0% over the last year with a return of 126.9%.
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 is part of the industrials sector, which is considered cyclical. This means that sales revenues, and to some extent share prices, tend to increase during economic booms and then fall back to earth during busts. However, industrial companies can dampen this cyclical effect if they are invovled in multiple industries.
Howmet Aerospace's trailing 12 month P/E ratio is 48.6, based on its trailing EPS of $2.6. The company has a forward P/E ratio of 39.5 according to its forward EPS of $3.17 -- which is an estimate of what its earnings will look like in the next quarter.
As of the third quarter of 2024, the average Price to Earnings (P/E) ratio for US industrials companies is 25.42, and the S&P 500 has an average of 29.3. The P/E ratio consists in the stock's share price divided by its earnings per share (EPS), representing how much investors are willing to spend for each dollar of the company's earnings. Earnings are the company's revenues minus the cost of goods sold, overhead, and taxes.
Another key to assessing a company's health is to look at its free cash flow, which is calculated on the basis of its total cash flow from operating activities minus its capital expenditures. Capital expenditures are the costs of maintaining fixed assets such as land, buildings, and equipment. From Howmet Aerospace's last four annual reports, we are able to obtain the following rundown of its free cash flow:
| Date Reported | Cash Flow from Operations ($ k) | Capital expenditures ($ k) | Free Cash Flow ($ k) | YoY Growth (%) |
|---|---|---|---|---|
| 2023 | 901,000 | 219,000 | 682,000 | 26.3 |
| 2022 | 733,000 | 193,000 | 540,000 | 116.0 |
| 2021 | 449,000 | 199,000 | 250,000 | 196.9 |
| 2020 | 9,000 | 267,000 | -258,000 | -43.33 |
| 2019 | 461,000 | 641,000 | -180,000 | 67.33 |
| 2018 | 217,000 | 768,000 | -551,000 |
- Average free cash flow: $80.5 Million
- Average free cash flown growth rate: 23.4 %
- Coefficient of variability (the lower the better): 0.0 %
With its positive cash flow, the company can not only re-invest in its business, it can offer regular returns to its equity investors in the form of dividends. Over the last 12 months, investors in HWM have received an annualized dividend yield of 0.2% on their capital.
Value investors often analyze stocks through the lens of its Price to Book (P/B) Ratio (market value divided by 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 indicates that the market value of the company exceeds its book value by a factor of 11, 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.
Howmet Aerospace is by most measures overvalued because 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. The stock has poor growth indicators because it has a an inflated PEG ratio and strong operating margins with a positive growth rate. We hope you enjoyed this overview of HWM's fundamentals.
