top of page
Search
  • Writer's pictureAbacus Research

Howmet Aerospace (HWM)

After spinning out Arconic in April 2020, HWM is a more focussed, higher margin business, and we believe this ‘quality’ is not fully appreciated by the market

  • We see a cyclical recovery and improving margins across all its businesses

Aerospace growth capex has been spent, leaving the industry with improving returns and strong free cash-flow generation over the next 3-5 years as volume recovers.

  • HWM trades at ~5% 2023 FCF yield, 13x 2022 EV/EBITDA and ~24x PE on 2022 street estimates, yet it will grow earnings ~30% annually from 2021-23.

  • High incremental margins: Aggressive cost cutting appears structural in nature.

  • Incremental margins for next couple of years of ~35% on incremental volume vs. current 20%.

  • Strong cyclical recovery in commercial planes deliveries in 2022 and 2023 and Trucks benefiting from easing supply chain issues in H2 2022 and 2023.

  • Capital allocation to buybacks and M&A could also help earnings.

Potential Upside: $46 (+31%)

Sensible Downside: $30 (-14%)


Recent Posts

See All

Fortive: potential14% IRR

Fortive is a high quality business with an asset light model, high margins, high incremental margins and consistent FCF generation that is reinvested in M&A. Recent guidance for slow organic growth fo

Vertiv (VRT) - Datacentre play on AI theme

Vertiv is a leader in critical infrastructure for datacentres and a clear beneficiary of AI driven growth. AI tailwind for datacentres is only starting. To date, Vertiv has seen little to no impact fr

Palantir (PLTR)

The advent of LLM’s have changed Palantir's relationships with institutions – the commercial market is now open to what Palantir is selling. This is a significant change from one year ago. AIP bootcam

Comments


bottom of page