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Deutsche Bank has increased the price target for shares of Howmet Aerospace Inc. (NYSE: HWM (BMV:HWM)) to $125 from $106 while maintaining a Buy rating on the stock.
The bank's analyst predicts a third-quarter earnings per share (EPS) of $0.68 for Howmet, which is above the consensus estimate of $0.66, and anticipates a roughly 2% increase in guidance at the midpoint.
The analyst outlined potential scenarios where Howmet could surpass expectations, suggesting a possible 9% beat with $0.72 in EPS or a 7% beat with over $500 million in EBITDA.
These outcomes could be driven by various factors, including price adjustments, exceeding shipment volumes above long-term agreement (LTA) caps, and early shipments of the second-generation LEAP High-Pressure Turbine (HPT) blades before fourth-quarter certification.
Additionally, the analyst highlighted Howmet's adept management of decremental margins in its Forged Wheels division and the favorable mix of widebody aircraft in its fasteners business as potential contributors to better-than-expected results.
The forecast also includes an in-line revenue guidance with market expectations for 2025, which reflects a 10% increase. This projection is based on a higher 2024 base and the likelihood of another positive surprise in Engine Products EBITDA margins, which could lead to further positive revisions for future forecasts.
Despite Howmet's shares experiencing a significant increase, up 85% year-to-date, Deutsche Bank remains optimistic about the company's prospects. The analyst believes that the potential for continued positive revisions and the company's ability to compound free cash flow (FCF) over the long term present a compelling case for investment. The bank projects that Howmet could achieve a compound annual growth rate (CAGR) of 32% in FCF per share over the next two years, from 2024 to 2026.
In other recent news, Howmet Aerospace successfully closed a $500 million offering of 4.850% Notes due 2031, with an aim to refinance existing debt and reduce annual interest expenses.
The offering was conducted under an existing shelf registration statement and the notes were sold under an Indenture with The Bank of New York Mellon (NYSE:BK) Trust Company, N.A., as trustee. The company also announced the redemption of its 6.875% Notes due May 2025, funded through the net proceeds from the 2031 Notes offering and cash on hand.
Howmet Aerospace reported a 14% year-over-year increase in revenue and a 27% rise in commercial aerospace revenue. BTIG and Truist Securities acknowledged the company's substantial growth, debt reduction, and positive cash generation trajectory, leading to an increased price target on the company's shares to $115.00 and $105.00 respectively. Howmet Aerospace plans to increase capital expenditures by $30 million in 2024 and raise its common stock dividend to $0.08 per share.
InvestingPro Insights
InvestingPro data and tips offer additional context to Deutsche Bank's bullish outlook on Howmet Aerospace Inc. (NYSE: HWM). The company's market cap stands at $41.34 billion, reflecting its significant presence in the aerospace industry. Howmet's revenue growth of 14.46% over the last twelve months aligns with Deutsche Bank's positive expectations for the company's performance.
An InvestingPro Tip indicates that Howmet is trading at a low P/E ratio relative to its near-term earnings growth, with a PEG ratio of 0.56. This suggests that the stock may be undervalued compared to its growth prospects, supporting Deutsche Bank's increased price target. Additionally, Howmet has demonstrated strong financial performance, with a remarkable 123.27% price total return over the past year and an 87.59% return year-to-date, corroborating the analyst's positive stance despite the significant share price increase.
For investors seeking a more comprehensive analysis, InvestingPro offers 15 additional tips for Howmet Aerospace, providing a deeper understanding of the company's financial health and market position.
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