Howmet Aerospace Inc. (HWM), an advanced engineered solutions provider for the aerospace and transportation industries, reported solid first-quarter financial results on May 2, 2024. The company reported a record quarterly revenue of $1.82 billion, surpassing analysts’ estimate of $1.74 billion.

Moreover, revenue from the Commercial Aerospace segment rose 23% year-over-year and was up 12% from the Defense Aerospace segment. Also, the company posted adjusted EPS of $0.57, compared to the consensus estimate of $0.52.

During the first quarter, Moody’s Investors Service, Inc. upgraded HWM’s senior unsecured rating from Ba1 to Baa3, making HWM an investment grade by all three credit rating agencies. It is a positive development for the company, signaling improved financial strength and potentially opening avenues for future growth.

Further, the company repurchased $150 million of common stock at an average price of $66.87 per share, retiring approximately 2.2 million shares. Also, on April 25, HWM’s Board of Directors declared a dividend of 5 cents ($0.05) per share on the outstanding common stock, paid on May 28, 2024, and a dividend of 93.75 cents ($0.93) per share on the outstanding $3.75 cumulative preferred stock.

Howmet Aerospace Executive Chairman and Chief Executive Officer John Plant said, “Howmet Aerospace delivered an outstanding start to 2024, with results exceeding the high end of guidance on all metrics. The team achieved record quarterly results in revenue, Adjusted EBITDA, Adjusted EBITDA margin and Adjusted earnings per share.”

He added, “Subject to Board approval, we also expect to increase the common stock dividend by 40% in the third quarter 2024 to $0.07 per share, demonstrating the Company’s confidence in sustained healthy cash generation.”

According to the fiscal 2024 second-quarter guidance, HWM expects revenue between $1.82 billion and $1.84 billion. The company’s adjusted EBITDA is expected to range from $435 million to $445 million. Also, its adjusted EPS is expected to be $0.57 - $0.59.

For the full year 2024, the company has its total revenue guidance between $7.22 billion and $7.37 billion. Its adjusted EBITDA is expected to be $1.72 billion - $1.78 billion. The company’s adjusted EPS is expected to range from $2.31 to $2.39. Also, its free cash flow is set to be $750 million to $850 million.

Shares of HWM have surged 49.6% over the past six months and 72.7% over the past year to close its last trading session at $79.10.

Let’s look at factors that could influence HWM’s performance in the upcoming months.

Robust Financials

HWM’s sales increased 13.8% year-over-year to $1.82 billion during the first quarter that ended March 31, 2024. Its adjusted operating income excluding special items grew 27.1% from the year-ago value to $370 million. The company’s adjusted EBITDA of $436 million indicates growth of 22.8% from the prior year’s quarter.

In addition, the company’s net income came in at $243 million and $0.59 per share, up 64.2% and 63.9% year-over-year, respectively. Its free cash flow was $95 million in the quarter, against negative $41 million during the prior year’s quarter.

Also, the company’s cash and cash equivalents and total assets stood at $533 million and $10.41 billion as of March 31, 2024, respectively.

Solid Historical Growth

HWM’s revenue and EBITDA have grown at respective CAGRs of 12.4% and 17.6% over the past three years. The company’s EBIT has increased at a CAGR of 20.4% over the same timeframe, while its net income and EPS have improved at CAGRs of 89.7% and 94.3%, respectively.

Favorable Analyst Estimates

Analysts expect HWM’s revenue for the second quarter (ending June 2024) to increase 11.5% year-over-year to $1.84 billion. The consensus EPS estimate of $0.60 for the ongoing quarter indicates a 36.6% year-over-year improvement. Moreover, HWM has an impressive earnings surprise history, having topped consensus revenue and EPS estimates in each of the trailing four quarters.

For the fiscal year ending December 2024, the company’s revenue and EPS are expected to grow 10.4% and 30.2% year-over-year to $7.33 billion and $2.40, respectively. Additionally, Street expects its revenue and EPS for the fiscal year 2025 to increase 9.5% and 20.6% year-over-year to $8.03 billion and $2.89, respectively.

High Profitability

HWM’s trailing-12-month EBIT margin of 18.42% is 80.7% higher than the industry average of 10.20%. Its trailing-12-month net income margin of 12.53% is 107.3% higher than the industry average of 6.05%. Similarly, its trailing-12-month levered FCF margin of 7.91% is 23.6% higher than the industry average of 6.40%.

Furthermore, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 22.18%, 10.01%, and 8.26% favorably compared to the industry averages of 12.61%, 7.28%, and 4.89%, respectively.

POWR Ratings Reflect Promise

HWM’s solid fundamentals are reflected in its POWR Ratings. The stock has an overall rating of B, translating to Buy in our proprietary system. The POWR Ratings are calculated by considering 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight distinct categories. HWM has a B grade for Growth, in sync with its impressive historical growth and solid financial performance in the last reported quarter.

In addition, the stock has a B grade for Quality, consistent with its higher-than-industry profitability.

HWM is ranked #33 in the 79-stock A-rated Industrial - Machinery industry.

Beyond what I have stated above, we have also given HWM grades for Sentiment, Value, Momentum, and Stability. Get access to all the HWM Ratings here.

Bottom Line

HWM reported better-than-expected earnings for the first quarter of fiscal 2024. The company’s firm industry footing, strategic initiatives, and solid financial performance position it for bright long-term prospects. The Board declared a quarterly dividend of $0.05 per share and repurchased $150 million of common stock, supported by continued strong cash generation.

Further, the company expects to raise the common stock dividend by 40% in the third quarter this year to $0.07 per share.

Given HWM’s solid financials, accelerating profitability, reliable dividends, and promising growth outlook, this stock could be an ideal buy now.

How Does Howmet Aerospace Inc. (HWM) Stack Up Against Its Peers?

While HWM has an overall POWR Rating of B, investors could also check out these other stocks within the A-rated Industrial - Machinery industry with A (Strong Buy) or B (Buy) ratings: Twin Disc, Incorporated (TWIN), Tennant Company (TNC), and Curtiss-Wright Corporation (CW).

For exploring more A and B-rated industrial stocks, click here.

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HWM shares were trading at $79.00 per share on Monday morning, up $0.06 (+0.08%). Year-to-date, HWM has gained 46.19%, versus a 14.75% rise in the benchmark S&P 500 index during the same period.

Rajkumari started her career as a writer but gradually shifted her focus to financial journalism, leveraging her educational background in Commerce. Fascinated by the interplay of business and economic shifts in equities, she aspires to evolve as an analyst. With a knack for simplifying complex financial concepts, her mission is to empower investors with insights that lead to profitable decisions.

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