On Tuesday, KeyBanc Capital Markets adjusted its outlook on Howmet Aerospace Inc. (NYSE:HWM (BMV:HWM)) shares, raising the price target to $90 from the previous $70, while retaining an Overweight rating on the stock.
The revision reflects a positive assessment of the company's financial performance and future prospects following a robust first quarter in 2024, where Howmet Aerospace exceeded expectations in both sales and margins.
The firm has increased its earnings estimates for the second quarter of 2024 to $0.61 per share, up from $0.58, and for the full years 2024 and 2025 to $2.40 and $3.00 per share respectively, from previous estimates of $2.31 and $2.80.
The adjustments are based on anticipated stronger pricing, increased demand in the defense sector, and a significant uptick in after-market demand across commercial, defense, and industrial gas turbine markets.
Howmet Aerospace has also updated its full-year 2024 EBITDA margin guidance to 24% from the prior 23%, aligning with KeyBanc's adjusted expectation of 24.3%.
This margin improvement is attributed to several factors including the full realization of pricing strategies, enhanced labor efficiencies in the aerospace division, declining aluminum prices benefiting the Forged Wheels segment, and early indicators of heightened production activities for wide-body aircraft expected to commence in the years 2025-2026.
Despite the positive momentum, KeyBanc notes potential headwinds in the second half of 2024, as short lead times for Forged Wheels—a strong contributor to Howmet's performance—could affect the company's trajectory.
Additionally, the report highlights a shift from steel to aluminum in global markets, particularly as the global build cycle slows and sales remain robust.
Howmet's conservative outlook on commercial aerospace build rates, including subdued projections for 2H24 MAX builds and deliveries, is considered realistic. However, if Airbus and Boeing (NYSE:BA) achieve their production targets, Howmet could see further upside.
The analysis concludes with a nod to Howmet's strategic preference for shareholder returns, indicating that the company is more likely to engage in stock buybacks rather than mergers and acquisitions under the current market conditions.
InvestingPro Insights
The latest revision by KeyBanc Capital Markets aligns with several positive indicators from Howmet Aerospace Inc. (NYSE:HWM), as reflected in real-time data and InvestingPro Tips. Notably, Howmet has raised its dividend for three consecutive years, showcasing a commitment to shareholder returns. This is complemented by the fact that 15 analysts have revised their earnings upwards for the upcoming period, signaling confidence in the company's financial trajectory.
InvestingPro Data further enriches this outlook with a market capitalization of $34.58 billion and a robust revenue growth of 15.47% over the last twelve months as of Q1 2024. The company's P/E ratio stands at 40.53, and while this may suggest a premium valuation, the PEG ratio of 0.5 indicates potential for growth relative to earnings. Moreover, the stock has experienced a significant price uptick over the last six months, with a 63.32% total return, and is trading near its 52-week high at 99.12% of the peak.
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