Howmet Aerospace Inc (HWM, Financial) has seen a daily loss of -0.7% and a 3-month gain of 12.46%. With an Earnings Per Share (EPS) of 1.26, the question arises: is the stock modestly overvalued? This article aims to provide a comprehensive valuation analysis of Howmet Aerospace (HWM), offering insights into its intrinsic value and market performance.
Company Introduction
Howmet Aerospace, with a market cap of $20 billion, is a leading producer of products primarily used in aerospace, commercial transportation, and industrial markets. The company's innovative solutions include airfoils with advanced cooling and coatings for extreme temperature applications, specially designed fasteners for lightweight composite airframe construction, reduced assembly costs, and lightweight aluminum commercial wheels. Despite its current stock price of $48.52, the fair value (GF Value) of Howmet Aerospace is estimated at $42.9. This discrepancy suggests that the stock might be modestly overvalued.
Understanding GF Value
The GF Value represents the intrinsic value of a stock, derived from our exclusive method. The GF Value Line on our summary page gives an overview of the fair value that the stock should be traded at. It is calculated based on historical multiples, GuruFocus adjustment factor, and future estimates of the business performance.
According to GuruFocus Value calculation, Howmet Aerospace (HWM, Financial) appears to be modestly overvalued. This is based on the historical multiples that the stock has traded at, the past business growth, and analyst estimates of future business performance. The implication is that the long-term return of Howmet Aerospace's stock is likely to be lower than its business growth.
Financial Strength
Investing in companies with poor financial strength carries a higher risk of permanent loss of capital. Therefore, reviewing the financial strength of a company is vital before deciding to buy its stock. Howmet Aerospace has a cash-to-debt ratio of 0.13, which is worse than 79.24% of 289 companies in the Aerospace & Defense industry. GuruFocus ranks the overall financial strength of Howmet Aerospace at 5 out of 10, indicating fair financial strength.
Profitability and Growth
Investing in profitable companies, especially those with consistent profitability over the long term, is generally less risky. Howmet Aerospace has been profitable for 6 out of 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 84.81% of 283 companies in the Aerospace & Defense industry. Overall, the profitability of Howmet Aerospace is ranked 6 out of 10, indicating fair profitability.
Growth is a crucial factor in the valuation of a company. Howmet Aerospace's 3-year average revenue growth rate is worse than 68.97% of 261 companies in the Aerospace & Defense industry. However, its 3-year average EBITDA growth rate is 3.7%, which ranks better than 55.07% of 227 companies in the Aerospace & Defense industry.
Return on Invested Capital vs. Weighted Average Cost of Capital
Comparing a company's return on invested capital (ROIC) to its weighted cost of capital (WACC) is another way to evaluate its profitability. ROIC measures how well a company generates cash flow relative to the capital it has invested in its business. WACC is the rate that a company is expected to pay on average to all its security holders to finance its assets. Over the past 12 months, Howmet Aerospace's ROIC was 9.25, while its WACC came in at 10.68.
Conclusion
In conclusion, the stock of Howmet Aerospace (HWM, Financial) appears to be modestly overvalued. The company's financial condition is fair, its profitability is fair, and its growth ranks better than 55.07% of 227 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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