Howmet Aerospace and the Rebound of Global Aviation: A High-Valuation Buy for the Long Term

The global aviation industry is experiencing a historic rebound, driven by pent-up demand for air travel, the rollout of next-generation fuel-efficient aircraft, and sustained defense spending. At the center of this revival is Howmet Aerospace (HWM), a leader in aerospace manufacturing and industrial components. Despite its elevated valuation metrics, the company's robust financial performance, strategic positioning, and disciplined capital allocation make it a compelling long-term buy for investors willing to look beyond short-term multiples.

A Sector on the Rise: Aviation's Post-Pandemic Surge

The commercial aerospace market, Howmet's largest segment, is surging as airlines rebuild fleets and manufacturers like Boeing and Airbus deliver record numbers of narrow-body aircraft. Howmet's Q2 2025 results reflect this momentum: $2.05 billion in revenue, up 9% year-over-year, with commercial aerospace revenue rising 8%. The company's adjusted EBITDA margin hit 28.7%, up 300 basis points, while free cash flow reached $344 million, marking nine consecutive quarters of positive cash flow.

Defense aerospace is another tailwind. With global defense budgets expanding, Howmet's defense segment grew 21% year-over-year, driven by programs like the F-35 fighter jet. Industrial markets, including gas turbines for data centers, added 17% growth, underscoring the company's diversification.

Valuation Concerns: High P/E, But Justified by Growth

Howmet's current P/E ratio of 51.16–62.59 appears steep at first glance, especially compared to its 10-year average of 36.6. However, this metric must be contextualized. The broader Aerospace & Defense industry trades at a P/E of 79.43, meaning Howmet is actually undervalued relative to peers. Its PEG ratio of 2.07—while above 1—reflects a forward-looking view of earnings growth. Analysts project 7–8% annual earnings growth through 2029, which, when combined with Howmet's strong balance sheet and free cash flow generation, suggests the market is pricing in conservative, not aggressive, expectations.

Moreover, Howmet's EV/EBITDA of 39.91x is justified by its high-margin business model. The company's aerospace segments operate at 33% EBITDA margins, far exceeding the industry average of 7.42%. This premium is a function of Howmet's proprietary technologies and long-term contracts with OEMs, which provide stable cash flows and pricing power.

Strategic Strengths: Capital Discipline and Shareholder Returns

Howmet's management has demonstrated a commitment to disciplined capital allocation. In 2025 alone, the company has repurchased $400 million in shares, reducing the float by 2.8 million shares. It also boosted its dividend by 20% to $0.12 per share, signaling confidence in its cash flow sustainability. These actions, coupled with $76 million in debt reduction, have strengthened the balance sheet, which the company describes as “the strongest in its history.”

The company's guidance for 2025 is equally bullish. It now expects $8.13 billion in revenue and $3.60 in adjusted EPS, up from $3.48 in 2024. Free cash flow is projected to hit $1.225 billion, providing ample flexibility for further buybacks or reinvestment in growth areas like additive manufacturing and hydrogen-powered propulsion systems.

Risks and Mitigants

Critics may point to the 4% decline in commercial transportation revenue and the sector's cyclicality. However, this segment represents a small portion of Howmet's business, and the company's exposure to defense and industrial markets offsets this risk. Additionally, Howmet's $1.797 billion in remaining share repurchase authorization and $3.253 billion in long-term debt (with manageable interest costs) provide a buffer against macroeconomic volatility.

Investment Thesis: Buy for the Long Term

While Howmet's valuation is elevated, its structural advantages—high-margin aerospace exposure, strong free cash flow, and aggressive shareholder returns—justify the premium. The company is well-positioned to benefit from the $1.2 trillion global aerospace and defense spending boom over the next decade. For investors with a 5–10 year horizon, Howmet offers a rare combination of defensive cash flow and growth potential, making it a compelling buy despite its current multiples.

Final Verdict: Buy Howmet Aerospace for its durable competitive advantages and alignment with long-term industry tailwinds. The stock's valuation is a function of its growth, not a barrier to it.