On November 02, 2023, Howmet Aerospace Inc (HWM, Financial) experienced a significant daily gain of 8.74%, bringing a 3-month gain to 0.21%. With an Earnings Per Share (EPS) of 1.26, investors may wonder if the stock is fairly valued. This article aims to answer that question through a comprehensive valuation analysis. Read on to explore Howmet Aerospace's financial performance, profitability, and growth prospects.
Company Overview
Howmet Aerospace Inc is a major player in the aerospace, commercial transportation, and industrial markets. The company specializes in providing innovative solutions such as advanced airfoils, specially designed fasteners, and lightweight aluminum commercial wheels. With a current stock price of $48.63, Howmet Aerospace Inc (HWM, Financial) has a market cap of $20 billion. The company's GF Value, a proprietary measure of a stock's fair value, stands at $44.66.
Understanding GF Value
The GF Value is a unique measure of a stock's intrinsic value, computed by considering historical trading multiples, a GuruFocus adjustment factor based on past performance and growth, and future business performance estimates. The GF Value Line gives an overview of the fair value that the stock should be traded at. If the stock price is significantly above the GF Value Line, it is overvalued and its future return is likely to be poor. On the other hand, if it is significantly below the GF Value Line, its future return will likely be higher.
The stock of Howmet Aerospace (HWM, Financial) shows every sign of being fairly valued based on GuruFocus' valuation method. Hence, the long-term return of its stock is likely to be close to the rate of its business growth.
Financial Strength
Checking the financial strength of a company before buying its stock is crucial. Investing in companies with poor financial strength have a higher risk of permanent loss. A great way to understand the financial strength of a company is by looking at the cash-to-debt ratio and interest coverage. Howmet Aerospace's cash-to-debt ratio of 0.13 is worse than 78.23% of 294 companies in the Aerospace & Defense industry. This indicates that the financial strength of Howmet Aerospace is fair.
Profitability and Growth
Investing in profitable companies, especially those that have demonstrated consistent profitability over the long term, poses less risk. Howmet Aerospace has been profitable 6 over the past 10 years. Over the past twelve months, the company had a revenue of $6.20 billion and Earnings Per Share (EPS) of $1.26. Its operating margin is 17.17%, which ranks better than 83.11% of 296 companies in the Aerospace & Defense industry.
Growth is a crucial factor in the valuation of a company. The faster a company is growing, the more likely it is to be creating value for shareholders, especially if the growth is profitable. The 3-year average annual revenue growth rate of Howmet Aerospace is -4.3%, which ranks worse than 70.19% of 265 companies in the Aerospace & Defense industry. The 3-year average EBITDA growth rate is 3.7%, which ranks better than 55.84% of 231 companies in the Aerospace & Defense industry.
ROIC vs WACC
Comparing a company's return on invested capital and the weighted cost of capital is another way to look at its profitability. Return on invested capital (ROIC) measures how well a company generates cash flow relative to the capital it has invested in its business. The weighted average cost of capital (WACC) is the rate that a company is expected to pay on average to all its security holders to finance its assets. For the past 12 months, Howmet Aerospace's return on invested capital is 9.25, and its cost of capital is 10.98.
Conclusion
In conclusion, the stock of Howmet Aerospace (HWM, Financial) shows every sign of being fairly valued. The company's financial condition is fair, and its profitability is fair. Its growth ranks better than 55.84% of 231 companies in the Aerospace & Defense industry. To learn more about Howmet Aerospace stock, you can check out its 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.
