Howmet Aerospace Inc. (HWM) provides advanced engineered solutions for the aerospace and transportation industries. It is currently trading near its 52-week high of $37.66, which it hit on March 22, 2022. In addition, the stock has gained 18.9% over the past three months to close Friday’s trading session at $37.

The company reported mixed fourth-quarter results. While EPS for the quarter beat Street estimate by 3.5%, revenue missed the consensus estimate by 2.3%. Moreover, the company witnessed a decline in hedge fund sentiment. So, HWM’s near-term prospects look uncertain.

Here’s what could influence HWM’s performance in the upcoming months:

Favorable Analyst Estimates

For fiscal 2022, analysts expect HWM’s EPS and revenue to grow 37.6% and 12.9% year-over-year to $1.39 and $5.61 billion, respectively. In addition, its EPS is expected to grow at 32.3% per annum over the next five years. Moreover, Wall Street analysts expect the stock to hit $40 in the near term, indicating a potential upside of 8.1%.

Top Line Growth Doesn’t Translate into Bottom Line Improvement

For the fiscal fourth quarter ended December 31, 2021, HWM’s revenue surged 4% year-over-year to $1.29 billion. However, its operating income for the quarter decreased 33.5% year-over-year to $147 million. Its net income came in at $77 million, representing a 27.4% year-over-year decrease. Also, its EPS came in at $0.18, down 25% year-over-year.

Low Profitability

In terms of the trailing-12-month asset turnover ratio, HWM’s 0.46% is 41.1% lower than the industry average of 0.78%. Likewise, its trailing-12-month net income margin of 5.19% is 19.8% lower than the industry average of 6.47%. Moreover, the stock’s trailing-12-month ROCE, ROTC, and ROTA of 7.34%, 6.44%, and 2.52% are lower than the industry averages of 13.73%, 6.83%, and 5.14%, respectively.

Stretched Valuation

In terms of forward P/S, HWM’s 2.76x is 95.3% higher than the industry average of 1.41x. Likewise, its forward EV/S of 3.42x is 92.5% higher than the industry average of 1.78x. Moreover, the stock’s forward P/B and non-GAAP P/E of 4.02x and 26.45x are higher than the industry averages of 2.68x and 18.19x, respectively.

POWR Ratings Don’t Indicate Enough Upside

HWM has an overall rating of C, which equates to a Neutral in our POWR Ratings system. The POWR Ratings are calculated by taking into account 118 different factors, with each factor weighted to an optimal degree.

Our proprietary rating system also evaluates each stock based on eight different categories. HWM has a C grade for Value, in sync with its higher-than-industry valuation ratios.

The stock has a C grade for Quality, in sync with its lower-than-industry profitability ratios. In addition, HWM has a C grade for Stability, consistent with its beta of 1.46.

HWM is ranked #43 out of 77 stocks in the B-rated Industrial – Machinery industry. Click here to access HWM’s Growth, Sentiment, and Momentum ratings.

Bottom Line

HWM’s near-term prospects look uncertain because of the ongoing supply chain disruptions and resurgence of Covid-19 cases worldwide. So, the stock looks overvalued at the current price level, and it could be wise to wait for a better entry point in the stock.

How Does Howmet Aerospace (HWM) Stack Up Against its Peers?

While HWM has an overall POWR Rating of C, you might want to consider investing in the following Industrial – Machinery stocks with an A (Strong Buy) rating: Crane Co. (CR), ABB Ltd (ABB), and THK CO., LTD. (THKLY).

HWM shares were unchanged in after-hours trading Monday. Year-to-date, HWM has gained 14.71%, versus a -3.71% rise in the benchmark S&P 500 index during the same period.

About the Author: Nimesh Jaiswal

Nimesh Jaiswal's fervent interest in analyzing and interpreting financial data led him to a career as a financial analyst and journalist. The importance of financial statements in driving a stock’s price is the key approach that he follows while advising investors in his articles. More...

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