Howmet Aerospace Inc (HWM, Financial) has recently shown a daily gain of 0.89% and a 3-month gain of 13.57%, with an Earnings Per Share (EPS) of $1.52. Investors might wonder if the current stock valuation accurately reflects the company's worth, or if Howmet Aerospace (HWM) is modestly overvalued as suggested by the GuruFocus Value. This article aims to delve into the valuation analysis of Howmet Aerospace, providing readers with a comprehensive understanding of its market position and intrinsic value.
Company Introduction
Howmet Aerospace Inc, with a market cap of $22.30 billion and sales of $6.40 billion, operates predominantly in the aerospace, commercial transportation, and industrial markets. The company is known for its innovative solutions, offering advanced airfoils, specialized fasteners, and lightweight aluminum wheels among other products. Howmet Aerospace has a diverse portfolio divided into four reportable segments: Engine Products, Fastening Systems, Engineered Structures, and Forged Wheels. A key question arises: how does the current stock price of $54.14 compare to the company's fair value?
Summarize GF Value
The GF Value is a proprietary metric that represents the intrinsic value of a stock, incorporating historical trading multiples, an adjustment factor based on past performance, and estimates of future business performance. According to this measure, Howmet Aerospace (HWM, Financial) is currently modestly overvalued. The GF Value Line suggests that the stock should ideally trade at a fair value of $46.67, while it is currently priced at $54.14. This discrepancy indicates that the stock may not offer the same level of returns as its business growth in the long run.
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Financial Strength and Profitability
Assessing a company's financial strength is crucial to minimize the risk of permanent capital loss. Howmet Aerospace's cash-to-debt ratio stands at 0.11, which is lower than 80.6% of its industry peers. The company's overall financial strength rating is 6 out of 10, indicating a fair financial condition.
Profitability is another critical factor for investors. Howmet Aerospace has maintained profitability for 6 out of the last 10 years, with a strong operating margin of 17.86%, ranking higher than 84.46% of companies in its industry. Its profitability rank is also considered fair at 6 out of 10.
In terms of growth, the company's 3-year average annual revenue growth rate is -4.3%, while its EBITDA growth rate is 3.7%, showcasing a mixed performance compared to the industry.
ROIC vs WACC
An effective way to gauge profitability is by comparing the Return on Invested Capital (ROIC) to the Weighted Average Cost of Capital (WACC). Howmet Aerospace's ROIC of 10.02% slightly surpasses its WACC of 9.94%, suggesting the company is creating value for its shareholders.
Conclusion
Considering the financial strength, profitability, and growth metrics, Howmet Aerospace (HWM, Financial) appears to be modestly overvalued in the market. With fair financial conditions and profitability, alongside a growth rank that is better than more than half of the companies in its industry, Howmet Aerospace presents an intriguing case for investors. Those interested in a deeper analysis can explore the company'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.
