Howmet Aerospace Inc (HWM, Financial) has shown resilience in the market with a daily gain of 0.67% and a commendable 3-month gain of 9.33%. With an Earnings Per Share (EPS) of 1.52, investors are keen to understand whether the stock is valued appropriately. The central question we aim to answer is: Is Howmet Aerospace modestly overvalued? By delving into a detailed valuation analysis, we will explore the intrinsic worth of HWM and provide investors with insights into its fair market position.
Howmet Aerospace Inc, with its diversified portfolio, has positioned itself strongly in the aerospace, commercial transportation, and industrial markets. Specializing in advanced products such as airfoils, fasteners, and forged wheels, the company is focused on innovation and customer-centric solutions. A critical factor in assessing the company's value is comparing its current stock price of $52.62 to the GF Value, an estimation of its fair value. This comparison sets the stage for an in-depth valuation analysis, combining financial metrics with the company's operational history.
Understanding the GF Value
The GF Value is a proprietary metric that represents the intrinsic value of a stock, factoring in historical trading multiples, a GuruFocus adjustment based on past performance and growth, and future business performance projections. The GF Value Line serves as a benchmark for the stock's ideal trading value. When a stock's price significantly exceeds the GF Value Line, it is considered overvalued, indicating a potential decline in future returns. Conversely, a price below the GF Value Line suggests undervaluation and the likelihood of higher future returns.
At a market cap of $21.70 billion, Howmet Aerospace's current price suggests that the stock is modestly overvalued. The implication is that the long-term return on Howmet Aerospace's stock may not align with the company's business growth, given its current valuation.
Financial Strength Assessment
Investing in companies with robust financial strength is crucial to avoid permanent capital loss. Howmet Aerospace's cash-to-debt ratio of 0.11, ranking lower than 81.69% of its industry peers, indicates a need for caution. GuruFocus rates the company's financial strength as a moderate 5 out of 10, reflecting a fair balance sheet.
Profitability and Growth Prospects
Long-term profitability is a less risky proposition for investors. Howmet Aerospace, with a solid track record of profitability over the past decade, boasts an operating margin of 17.86%, outperforming 83.84% of its industry counterparts. This level of profitability, combined with a fair ranking of 6 out of 10, underscores the company's competent financial performance.
Growth is a pivotal valuation factor, and Howmet Aerospace's 3-year average revenue growth rate lags behind 70.3% of the industry. However, its EBITDA growth rate of 3.7% is more competitive, placing it ahead of 55.36% of its industry peers, showcasing a balanced growth trajectory.
ROIC vs. WACC Analysis
Comparing Return on Invested Capital (ROIC) with the Weighted Average Cost of Capital (WACC) provides insight into a company's profitability relative to its capital costs. Howmet Aerospace's ROIC of 10.02 is marginally below its WACC of 10.98, suggesting that the company is not generating excess returns over its capital costs.
In conclusion, Howmet Aerospace Inc (HWM, Financial) appears to be modestly overvalued based on current market metrics. The company maintains a fair financial condition and profitability, with growth prospects that are competitive within the Aerospace & Defense industry. For a more detailed financial overview, interested investors can examine Howmet Aerospace's 30-Year Financials here.
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This article, generated by GuruFocus, is designed to provide general insights and is not tailored financial advice. Our commentary is rooted in historical data and analyst projections, utilizing an impartial methodology, and is not intended to serve as specific investment guidance. It does not formulate a recommendation to purchase or divest any stock and does not consider individual investment objectives or financial circumstances. Our objective is to deliver long-term, fundamental data-driven analysis. Be aware that our analysis might not incorporate the most recent, price-sensitive company announcements or qualitative information. GuruFocus holds no position in the stocks mentioned herein.