Howmet Faces Softness in Commercial Transportation Market: Recovery Ahead?

Group 1: Company Performance - Howmet Aerospace Inc. (HWM) is experiencing ongoing weakness in its commercial transportation market, with revenues declining 4% year-over-year in Q2 2025, following a 14% drop in Q1 2025 [1][7] - The decline in revenue is attributed to softer OEM builds, particularly in the Forged Wheels segment, and lower commercial truck builds due to tariff-related and economic uncertainties in North America [1][7] - The company's cost of goods sold (COGS) increased by 7.3% in 2024 and 3% in the first half of 2025, driven by rising aluminum prices and supply-chain volatility [2][7] Group 2: Market Dynamics - Despite challenges in the commercial transportation sector, solid momentum in the commercial and defense aerospace markets is supporting HWM's performance, with robust orders for engine spares for the F-35 program and aerospace fastening systems [3] - Supply-chain volatility and tariff-related headwinds are expected to continue impacting HWM's delivery of finished products and operational costs [2] Group 3: Competitive Landscape - HWM's peer, Kennametal Inc. (KMT), is also facing softness in its Metal Cutting segment, with organic revenues decreasing 4% year-over-year in Q4 of fiscal 2025 due to reduced demand in the transportation end market [4] - GE Aerospace is experiencing strong demand for its engines and services, supported by increasing air traffic and fleet renewal activities, indicating a contrasting performance in the aerospace sector [5] Group 4: Valuation and Estimates - HWM's shares have surged 34% over the past six months, outperforming the industry's growth of 20.5% [6] - The company is currently trading at a forward price-to-earnings ratio of 43.51X, which is above the industry average of 28.19X, and carries a Value Score of D [9] - The Zacks Consensus Estimate for HWM's earnings has been on the rise over the past 60 days, indicating positive sentiment among analysts [10]