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The strongest driver of Howmet Aerospace Inc.’s HWM business at the moment is the commercial aerospace market. The strength in air travel continues, with wide-body aircraft demand picking up, supporting continued OEM spending. Increased usage of aircraft has been driving demand for parts and products that the company provides, which has been again driving its sales. Revenues from the commercial aerospace market increased 17% year over year in the third quarter of 2024, constituting more than 50% of its business.
The defense side of the aerospace industry has also been witnessing positive momentum, cushioned by steady government support. The company has been witnessing robust orders for engine spares for the F-35 program and spares and new builds for legacy fighters. Solid U.S budgetary provisions for the defense sector set the stage for HWM to focus on its business to win more contracts, which is likely to boost its top line.
The company’s sound liquidity position supports its shareholder-friendly policies. Exiting the third quarter, Howmet Aerospace’s cash equivalents and receivables totaled $1.23 billion compared with its short-term maturities of $1 million. Also, in the first nine months of 2024, it paid dividends worth $76 million and repurchased shares for $310 million.
In July 2024, the company hiked its quarterly dividend by 60% to 8 cents per share. In the same month, its board also approved an increase in the share repurchase program by $2 billion to $2.487 billion of its common stock.
HWM’s Price Performance
Image Source: Zacks Investment Research
In the past year, this Zacks Rank #3 (Hold) company’s shares have gained 114.6% against the industry’s decline of 6.3%.
Despite the positives, softness in the commercial transportation market has been a major concern for the company. In third-quarter 2024, revenues from the commercial transportation market declined 12% on a year-over-year basis. The company expects demand in the commercial transportation markets served by the Forged Wheels segment to decline in the near term due to lower OEM builds.
The escalating costs and expenses also pose a threat to HWM’s bottom line. For instance, in 2023, its cost of goods sold jumped 16.3% year over year while selling, general, administrative and other expenses increased 15.6%. The trend continued in the first nine months of 2024, with the cost of goods sold increasing 8.1% and selling, general and administrative expenses rising 8%, primarily due to an increase in employment costs.
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