Howmet (HWM) Shares Increase 11% YTD: What's Driving it?
Shares of Howmet Aerospace HWM have gained 11.3% in the year-to-date period, outperforming the industry’s 2% decrease. Recovery in the commercial aerospace end market and strength in industrial gas turbine and oil and gas end markets are driving the stock higher.
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Howmet is benefiting from continued recovery in the commercial aerospace end market, owing to recovery in narrow-body. Revenues from commercial aerospace jumped 34% year over year. Strength in the commercial aerospace market is driving revenues at the Engine Products (up 20% year over year in the second quarter), Fastening Systems (up 6% year over year) and Engineered Structures (up 16% year over year) segments. Higher aluminum prices and volumes are supporting growth of the Forged Wheels (up 22% year over year) segment.
The company expects the commercial aerospace recovery to continue, backed by improvement in narrow-body production rates. This is expected to drive performance in 2022. Strength in industrial gas turbine and oil and gas end markets is likely to aid performance in 2022.
Sustained improvement in margin despite inflationary pressure also drove the stock higher. Despite raw material cost inflation, adjusted EBITDA margin improved to 27.5% in the second quarter from 23.9% in the year-ago quarter. The same improved to 27.4% in the first quarter from 24.7% in the year-ago quarter. Cost-control measures, efficiency gains and pricing actions are supporting the company’s margin performance.
Howmet’s projections for the third quarter of 2022 and the full year are encouraging. For the third quarter, HWM anticipates revenues of $1.425-$1.455 billion, with a mid-point of $1.44 billion. The mid-point of the guided range is higher than $1.283 billion reported in the year-ago quarter. For 2022, the company anticipates revenues of $5.645-$5.715 billion, with the mid-point pegged at $5.680 billion. The mid-point is higher than $4.972 billion reported in 2021.
Howmet’s measures to consistently reward its shareholders through dividends and share buybacks also boosted its shares. The company paid out dividends of $18 million in the first six months compared with $1 million in the year-ago period. Also, it repurchased shares worth $235 million in the first six months compared with a $200-million buyback made a year ago.
Zacks Rank & Key Picks
Howmet carries a Zacks Rank #3 (Hold). Some better-ranked stocks within the broader Construction sector are as follows:
Arcosa ACA sports a Zacks Rank #1 (Strong Buy). ACA pulled a trailing four-quarter earnings surprise of 56.5% on average. You can see the complete list of today’s Zacks #1 Rank stocks.
Arcosa has an estimated earnings growth rate of 7.8% for the current year. Shares of the company have rallied 10.9% in the year-to-date period.
Dycom Industries DY flaunts a Zacks Rank #1. DY delivered a trailing four-quarter earnings surprise of 140%, on average.
Dycom Industries has an estimated earnings growth rate of 134.2% for the current year. Shares of the company have gained 20% in the year-to-date period.
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