Metal Fabrication company Howmet Aerospace is taking Wall Street by surprise today, falling to $175.25 and marking a -3.1% change compared to the S&P 500, which moved 0.0%. HWM is -13.39% below its average analyst target price of $202.34, which implies there is more upside for the stock.
As such, the average analyst rates it at buy. Over the last year, Howmet Aerospace shares have outstripped the S&P 500 by 74.5%, with a price change of 92.7%.
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 51.2, based on its trailing EPS of $3.42. The company has a forward P/E ratio of 40.7 according to its forward EPS of $3.17 -- which is an estimate of what its earnings will look like in the next quarter. The P/E ratio is the company's share price divided by its earnings per share. In other words, it represents how much investors are willing to spend for each dollar of the company's earnings (revenues minus the cost of goods sold, taxes, and overhead). As of the third quarter of 2024, the industrials sector has an average P/E ratio of 24.03, and the average for the S&P 500 is 29.3.
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 $977.0 Million as of its most recent annual report. Over the last 4 years, the company's average free cash flow has been $335.17 Million and they've been growing at an average rate of 45.1%. With such strong cash flows, the company can not only re-invest in its business, it can afford to 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 (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 14.2 -- in other words, the market value of the company exceeds its book value by a factor of more than 14, so the company's assets may be overvalued compared to the average P/B ratio of the Industrials sector, which stands at 2.89 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 generally positive cash flows with an upwards trend, Howmet Aerospace is likely fairly valued 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.
