Howmet Aerospace: Robust Commercial Outlook And Strong Travel Demand

Core Viewpoint - Howmet (NYSE:HWM) reported strong earnings for 2Q24, with a 14% year-over-year revenue growth primarily driven by the commercial aerospace market, which constitutes about 52% of total revenue [2][8][14] Financial Performance - Revenue for 2Q24 increased by 14% year-over-year, with commercial aerospace growing 27% year-over-year and defense aerospace increasing 11% year-over-year [8][14] - Adjusted operating income margin expanded from 18.3% to 22%, while adjusted EBITDA increased by 31% year-over-year to $483 million, resulting in an adjusted EBITDA margin rise from 22.3% to 25.7% [9][14] - Adjusted EPS rose 52% year-over-year from $0.44 to $0.67 [9][14] Market Dynamics - The commercial aerospace market is crucial for HWM, accounting for over half of its revenue, and is supported by strong air travel demand, particularly in the Asia-Pacific region, where international travel has grown by about 20% [6][14] - Data from the International Civil Aviation Organisation indicates that both revenue passenger kilometres (RPK) and available seat kilometres (ASK) have increased compared to June 2019, with ASK up 7.7% and RPK up 1.8% [6][8] Segment Performance - HWM's engine products segment, which accounts for 49% of total revenue, reported a 14% year-over-year revenue increase, driven by growth in commercial aerospace and defense aerospace [5][10] - The fastening systems segment grew by 20%, and engineered structures increased by 38%, while the forged wheels segment saw a decline of 4% [9] Outlook and Guidance - HWM's guidance for FY2024 includes revenue estimates between $7.4 billion and $7.48 billion, with adjusted EBITDA forecasted to be in the range of $1.855 billion to $1.875 billion, implying an adjusted EBITDA margin of approximately 25.1% [11] - The company has increased its expectations for Boeing's 737 aircraft build rate from 20 to 22 aircraft per month, reflecting optimism despite ongoing production challenges at Boeing [7][14] Relative Valuation - HWM's forward revenue growth rate is 12.91%, outperforming the peers' median of 10.96%, and its EBITDA margin TTM is 23.47%, significantly higher than the peers' median of 12.88% [11] - HWM's current forward non-GAAP P/E ratio is 36.22x, above the peers' median of 27.90x, justified by its strong growth and profitability metrics [11]