Howmet (HWM)

Aerospace and defense company Howmet (NYSE:HWM) met Wall Street’s revenue expectations in Q1 CY2025, with sales up 6.5% year on year to $1.94 billion. The company expects next quarter’s revenue to be around $1.99 billion, close to analysts’ estimates. Its non-GAAP profit of $0.86 per share was 10.7% above analysts’ consensus estimates.

Company Overview

Inventing the first forged aluminum truck wheel, Howmet (NYSE:HWM) specializes in lightweight metals engineering and manufacturing multi-material components used in vehicles.

Aerospace companies often possess technical expertise and have made significant capital investments to produce complex products. It is an industry where innovation is important, and lately, emissions and automation are in focus, so companies that boast advances in these areas can take market share. On the other hand, demand for aerospace products can ebb and flow with economic cycles and geopolitical tensions, which can be particularly painful for companies with high fixed costs.

Howmet’s competitors include Boeing (NYSE:BA), Lockheed Martin (NYSE:LMT), and TransDigm (NYSE:TDG)

A company’s long-term performance is an indicator of its overall quality. Any business can put up a good quarter or two, but the best consistently grow over the long haul. Regrettably, Howmet’s sales grew at a sluggish 1.6% compounded annual growth rate over the last five years. This wasn’t a great result, but there are still things to like about Howmet.

Long-term growth is the most important, but within industrials, a half-decade historical view may miss new industry trends or demand cycles. Howmet’s annualized revenue growth of 12.7% over the last two years is above its five-year trend, suggesting its demand recently accelerated.

Howmet also breaks out the revenue for its most important segments, Engine products and Fastening systems, which are 51.3% and 21.2% of revenue. Over the last two years, Howmet’s Engine products revenue (aircraft engines, industrial turbines) averaged 16.1% year-on-year growth while its Fastening systems revenue (connector products and tools) averaged 17.4% growth.

This quarter, Howmet grew its revenue by 6.5% year on year, and its $1.94 billion of revenue was in line with Wall Street’s estimates. Company management is currently guiding for a 5.9% year-on-year increase in sales next quarter.

Looking further ahead, sell-side analysts expect revenue to grow 9.1% over the next 12 months, a deceleration versus the last two years. Still, this projection is admirable and indicates the market sees success for its products and services.

Operating margin is a key measure of profitability. Think of it as net income - the bottom line - excluding the impact of taxes and interest on debt, which are less connected to business fundamentals.

Howmet has been a well-oiled machine over the last five years. It demonstrated elite profitability for an industrials business, boasting an average operating margin of 17.7%.

Looking at the trend in its profitability, Howmet’s operating margin rose by 11.8 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Howmet generated an operating profit margin of 25.4%, up 5.2 percentage points year on year. This increase was a welcome development and shows it was more efficient.

Revenue trends explain a company’s historical growth, but the long-term change in earnings per share (EPS) points to the profitability of that growth – for example, a company could inflate its sales through excessive spending on advertising and promotions.

Howmet’s EPS grew at a spectacular 15.5% compounded annual growth rate over the last five years, higher than its 1.6% annualized revenue growth. This tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Howmet’s earnings can give us a better understanding of its performance. As we mentioned earlier, Howmet’s operating margin expanded by 11.8 percentage points over the last five years. On top of that, its share count shrank by 7.5%. These are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a shorter period to see if we are missing a change in the business.

For Howmet, its two-year annual EPS growth of 40.3% was higher than its five-year trend. We love it when earnings growth accelerates, especially when it accelerates off an already high base.

In Q1, Howmet reported EPS at $0.86, up from $0.58 in the same quarter last year. This print easily cleared analysts’ estimates, and shareholders should be content with the results. Over the next 12 months, Wall Street expects Howmet’s full-year EPS of $2.98 to grow 13.6%.

If you’ve followed StockStory for a while, you know we emphasize free cash flow. Why, you ask? We believe that in the end, cash is king, and you can’t use accounting profits to pay the bills.

Howmet has shown impressive cash profitability, enabling it to ride out cyclical downturns more easily while maintaining its investments in new and existing offerings. The company’s free cash flow margin averaged 8.9% over the last five years, better than the broader industrials sector.

Taking a step back, we can see that Howmet’s margin expanded by 12.6 percentage points during that time. This is encouraging because it gives the company more optionality.

Howmet’s free cash flow clocked in at $134 million in Q1, equivalent to a 6.9% margin. This result was good as its margin was 1.7 percentage points higher than in the same quarter last year, building on its favorable historical trend.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? Enter ROIC, a metric showing how much operating profit a company generates relative to the money it has raised (debt and equity).

Howmet’s five-year average ROIC was 12.3%, higher than most industrials businesses. This illustrates its management team’s ability to invest in profitable growth opportunities and generate value for shareholders.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. Fortunately, Howmet’s has increased over the last few years. This is a great sign when paired with its already strong returns. It could suggest its competitive advantage or profitable growth opportunities are expanding.

Howmet reported $536 million of cash and $3.32 billion of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $2.04 billion of EBITDA over the last 12 months, we view Howmet’s 1.4× net-debt-to-EBITDA ratio as safe. We also see its $79 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

Despite in-line revenue, Howmet beat EBITDA and EPS expectations. We were also impressed by Howmet’s optimistic full-year EBITDA guidance, which beat analysts’ expectations. Full-year EPS guidance was also raised. On the other hand, its Engine products revenue missed and its full-year revenue guidance fell slightly short of Wall Street’s estimates. Overall, we think this was still a solid quarter with some key areas of upside. The stock traded up 4.7% to $145.03 immediately following the results.

Updated: July 10, 2025 at 11:08 PM EDT

The latest quarterly earnings matters, sure, but we actually think longer-term fundamentals and valuation matter more. Investors should consider all these pieces before deciding whether or not to invest in Howmet.

Howmet is a rock-solid business worth owning. Although its revenue growth was weak over the last five years, its growth over the next 12 months is expected to be higher. And while its unimpressive EPS growth over the last five years shows it’s failed to produce meaningful profits for shareholders, its impressive operating margins show it has a highly efficient business model. In addition, Howmet’s rising cash profitability gives it more optionality.

Howmet’s P/E ratio based on the next 12 months is 52.7x. There’s no doubt it’s a bit of a market darling given the lofty multiple, but we don’t mind owning a high-quality business, even if it’s expensive. Investments like this should be held patiently for at least three to five years as they benefit from the power of long-term compounding, which more than makes up for any short-term price volatility that comes with high valuations.

Wall Street analysts have a consensus one-year price target of $180.60 on the company (compared to the current share price of $178.87).