Howmet Aerospace Inc (HWM)

Conclusion

Howmet Aerospace makes engineered components for aerospace and transportation markets, including engine airfoils, aerospace fasteners, structural parts and forged aluminium wheels for heavy trucks. At 216.24 USD on 2026-11-09, the market capitalisation is 86.0 billion USD.

The verdict is overvalued. The fair value band runs from 85.86 to 128.80 USD with a midpoint of 107.33 USD, giving a margin of safety of -50.4% at the current price. The P/E of 41.9 is close to its ten-year median of 43.0, but EV/EBITDA of 29.9 compares with a median of 19.4, and price-to-book of 14.9 with 3.9. The DCF gives 77.34 USD per share at a discount rate of 11.35%, and the fair value from historical multiples is 137.32 USD. The reverse DCF implies revenue growth of 22.3% a year, while the revenue CAGR over five years is 9.4%.

The strongest numbers are the ROIC of 22.7% against a WACC of 11.0%, free cash flow conversion of 94.0% over the last twelve months, and an Altman Z-score of 9.03. The weakest are the price-to-book premium of 287.4% over its median, the EV/EBITDA premium of 53.6%, and the 22.3% growth the price implies. If earnings growth slows toward the five-year revenue pace, the multiples would have little support.

Financial health

Financial strength is green, held up by four metrics assessed as good: an Altman Z-score of 9.03, net debt to EBITDA of 1.3x, interest coverage of 15.0x and a current ratio of 1.86. The quick ratio is 0.73 and debt to equity is 0.77. The Altman model was designed for manufacturers, and Howmet is one, so the zone of 9.03 applies directly and is safe. The insolvency risk is low, about 0.2% by the estimate of the Ohlson model over one to two years, based on figures as of 2025-12-31. Over the last five years, debt has moved with revenue at -19.6% a year, which points to falling borrowing relative to sales.

Earnings quality

Earnings quality is green, supported by a Piotroski score of 8 out of 9, free cash flow conversion of 94.0% over the last twelve months and 93.4% over five years, and a share count that has fallen by 1.6% a year over five years. The accrual ratio is -3.5%, meaning cash earnings exceed reported earnings. Stock-based compensation is 1.0% of revenue, and free cash flow after it is 1.84 billion USD. The Beneish M-score is not available, so no reading can be given. The company beat earnings estimates in all eight of the last quarters, with an average surprise of 6.9%. Analysts raised the current-year estimates over the last 30 days (11 up, none down) and the next-year estimates show 20.8% growth.

Profitability

Profitability is green. The gross margin is 35.9% against a ten-year median of 22.8%, the operating margin is 29.0% against 17.1%, and the net margin is 21.1% against 5.9%. Return on invested capital is 22.7% against a WACC of 11.0%, giving a ROIC minus WACC value of 11.7%, while the five-year median ROIC is 13.5%. Return on equity is 35.6%, but leverage inflates it: the DuPont split shows a net margin of 18.3%, an asset turnover of 0.74 and an equity multiplier of 2.09x, all from 2025 annual data. Most of the return therefore comes from margins and capital efficiency rather than borrowing.

Growth

Growth is green, led by earnings per share, which grew at 49.4% a year over three years and 50.5% over five. Revenue compounded at 13.4% over three years and 9.4% over five, but at -4.0% over ten, so the longer record is weaker. Revenue grew in seven of the last ten years. Free cash flow per share grew 40.1% a year over three years and 14.4% over ten. The recent growth is strong, but the ten-year revenue figure shows that it followed a period of decline, so it may not persist at the same pace.

Valuation

Valuation is red. Against their own ten-year medians, the P/E of 41.9 carries a premium of -2.6%, EV/EBITDA of 29.9 a premium of 53.6%, P/FCF of 44.6 a premium of -22.7%, price-to-sales of 8.8 a premium of 230.4% and price-to-book of 14.9 a premium of 287.4%. The DCF gives 77.34 USD per share at a discount rate of 11.35%. The reverse DCF implies growth of 22.3%, while the comparison value it reports is 12.8%. The fair value is an order-of-magnitude estimate built on fixed assumptions, a 5% equity risk premium and capped growth, not a price target. The dividend yield is 0.24% and the payout on free cash flow is 10.5%.

Risks

The main risk is that the price already assumes more growth than the company has delivered. A reverse DCF implied growth of 22.3% a year is well above the 9.4% five-year revenue CAGR, so any slowdown would weigh on the current price. The large premiums to historical price-to-book and EV/EBITDA leave little margin for error. A fall in operating margin from 29.0% toward its ten-year median of 17.1% would reduce free cash flow and the basis for the high multiples. The Beneish M-score is not available, so manipulation risk in earnings cannot be assessed from this data. This analysis also has no debt maturity schedule and no revenue split by segment, so refinancing risk and the contribution of each business cannot be judged.