Howmet started with Buy at Truist as 'unique' asset in aerospace supply chain

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Howmet Aerospace (NYSE:HWM) +2.7% in Wednesday's trading, as defense related stocks rebound from yesterday's losses and the company enjoys an upbeat report from Truist, which initiated coverage with a Buy rating and $41 price target.

Truist's Michael Ciarmoli views Howmet (HWM) as "a unique and differentiated asset in the aerospace supply chain that should be in position to benefit from increasing aircraft production rates, share gains in the titanium aerospace market, an easing supply chain in the transportation market, and an operational playbook that should enable continued margin expansion in the coming years."

Howmet's (HWM) EBITDA margins have the potential to expand by several hundred basis points through 2025, Ciarmoli says.

Northrop Grumman (NOC) and L3Harris Technologies (LHX) both +3.7%, among the top gainers on the S&P 500, after defense names fizzled in the previous session.

Comments

[jackmaster20]

Today the FAA approved Boeing for delivery of the 787.
This is great news for BA who now can book the revenue
for all of the 787 parked in the lots.

This will also allow Boeing to restart production of additional
787 aircraft which means demand for jet engines and HWM
jet engine parts will also increase.

Plant has mentioned in prior conference call remarks that the
restart of the 787 production is important for HWM performance
and profitability.

Perhaps why HWM opened this morning higher, on an overall weak
morning tape, and after its recent strong rally.

HWM should really see 787 impact on its results in Q4...?

Getting 787 moving to customers is good news for HWM.

[wiuser]

HWM was a great trade after buying it near the bottom in March of 2020. It may be time for another go.

[Doggywag]

"Started at buy" would be better than "started with buy."

[brettze]

Howmet competes with Precision Castparts in some lines.. or take business from PC when PC cannot do . it is a third string or fourth string supplier.

[phyllisquirk]

@brettze you sure? originally from alcoa, so hard to imagine fourth string. my understanding hwm and pcp are the two major suppliers and are brought to design table at ba very early on. at any rate, what they do, nacells??, is prob more critical than the "skin" of jetliner. my take. the landing gear (ge, safran) also very critical...you don't want to mess it up. thanks for all your input, the cooler

[brettze]

@phyllisquirk It appears to me that howmet is strong on 737 engine parts. not as much with 777 or 787 and ABus jets maybe A320 sorts.. those small jets.. Howmet looks more like a takeover target to me and you probably won't get a big bid price maybe 20% jump. that is it.
Howmet take a lot of debt from spin off from Alcoa along with Arconic. Alcoa became squeaky clean with debt while alum prices was still stinkin low then boom prices went up!
China just stopped expanding smelters all of sudden. who could ve predicted that.
Arconic looks most interesting to me but it is heavily unionized which dull any prospective earning edges in the future.. It is heavy industry so it has to be unionized.. nothing will come out much for shareholders anyhow.

[jackmaster20]

@brettze

HWM is involved in every jet engine system .........their alloys
are required for many different types of aircraft parts.

I agree the HWM CEO is a buy out specialist. But HWM is
a prime supplier for jet engines and there are only 2 firms who
fab what these jet engines need.

Plant will not sell this firm until the commercial aviation market
has fully recovered. Then and only then Plant will sell this firm
for a strong premium given its high margins and very strong
free cash flow generation. HWM last quarter generated 110%
free cash flows from its earnings.

Plant will sell for a big premium given the margins and EBITDA
that HWM can provide. Plant has improved operations
substantially over the past 5 years. HWM today is a lot better
than the group of small unorganized specialty alloy firms AA
bought over a decade ago.

Recall it was Plant who stood in the way of Elliot buying ARNC
a few years ago for a low multiple. Plant could sell this firm
any day he wanted but he will be patient and sell when this firm
it hitting on all of its cylinders.

Given HWM strong margins and huge cash flow generation
prowess, the debt load is not a problem for Plant. HWM has
been paying down the debt since the spin off.

HWM gets above $50 before a sell is contemplated.

[Pabst]

Has been a long, tough slog with HWM (and its predecessor stocks, spin-offs, etc). Wish I had stuck with AA, but grew weary. HWM's near-term success rests with sustained recovery in aerospace and long-haul transportation. Current economy makes prospects tenuous. Maybe send joe on a 2-year paid vacation somewhere so as not to further (you fill in the blank).

[jackmaster20]

@Pabst

Once Boeing resolves many of its current manufacturing problems
and the FAA gives BA the go ahead to ship their jets.....that will be
a near term stimulus for HWM.

HWM is already in talks with Chinese commercial airlines manufactures
about parts they will need in the future.

Covid was a huge hit for the airlines and HWM (and PCP) but that
appears to be subsiding in 2022.

All the jet engine manufacturers are ready to go.

[Pabst]

@jackmaster20 Absolutely right on covid hitting airlines/parts....concern remains will airlines invest in new builds and need parts if economy tanks and fliers become grounded. And....will I still be able to afford that charter flight to transport my pets when I move to Phoenix (no pets in the belly!!).

[jackmaster20]

@Pabst

Global demand for air travel has not dipped (except briefly for Covid)
for decades.

The large % of new commercial aircraft are going into the Asian market
where air travel is growing strongly.

Air travel is a service that the world's consumers value highly and
demand consistently even through economic cycles.

[dick9999]

This is a new stock I’m not familiar with. Thanks

[phyllisquirk]

@dick9999 the value-added part of the old aa, alcoa, was the fasteners. this always made the co worth more than, say alcan up in canada. this long time ago. when company broke off from arconic whatever, the ceo went with the hwm. they never go with the loser, lesser, is my experience. i had it, sold it, drooling ....the cooler.

[phyllisquirk]

trades like a dreamboat. the cooler