Asia Pacific Air Travel And Defense Demand Will Expand Capacity

Key Takeaways

• Strong demand from commercial and defense aerospace markets, plus modern aircraft trends, underpin sustained revenue growth and higher net margins.
  
• Operational improvements, capacity expansions, and automation investments position the company for increased productivity and resilient long-term earnings.
  
• Elevated investment in capacity and persistent reliance on key aerospace customers heighten Howmet's exposure to demand volatility, supply chain risks, and margin pressures.

Catalysts

Provides advanced engineered solutions for the aerospace and transportation industries in the United States, Japan, France, Germany, the United Kingdom, Mexico, Italy, Canada, Poland, China, and internationally.

• The record high commercial aircraft backlog and accelerating global air travel, especially in Asia Pacific and Europe, are fueling increased production rates (e.g., 737 MAX and A320), leading to sustained and growing demand for Howmet's structural engine components. This supports higher revenues and multi-year visibility on earnings.
  
• The shift towards newer, fuel-efficient aircraft and ongoing replacement of aging fleets are driving strong demand for advanced, lightweight components and fasteners, positioning Howmet for expanded content per aircraft and higher net margins over the next several years.
  
• Robust global defense spending and continued modernization, highlighted by steady F-35 production and spare part demand, provide a growing, resilient revenue stream; long-term contracts support revenue and earnings stability despite cyclical risks in other sectors.
  
• Major capacity expansions in high-margin engine products and industrial gas turbines, backed by customer agreements, are set to ramp in 2026–2027; these projects should deliver significant revenue growth and incremental margin expansion as initial launch costs normalize.
  
• Strategic investments in automation and digital manufacturing, combined with cost rationalization and product mix optimization, are driving underlying productivity improvements and gross margin expansion, supporting robust long-term earnings growth.

Howmet Aerospace Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Howmet Aerospace's revenue will grow by 10.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 18.1% today to 21.2% in 3 years time.
• Analysts expect earnings to reach $2.2 billion (and earnings per share of $5.53) by about September 2028, up from $1.4 billion today. However, there is some disagreement amongst the analysts with the more bearish ones expecting earnings as low as $1.9 billion.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 45.8x on those 2028 earnings, down from 51.7x today. This future PE is greater than the current PE for the US Aerospace & Defense industry at 34.4x.
• Analysts expect the number of shares outstanding to decline by 0.77% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.7%, as per the Simply Wall St company report.

Howmet Aerospace Future Earnings Per Share Growth

Risks

• Heightened capital expenditures directed at capacity expansions and new facilities in both aerospace and industrial gas turbines may not immediately translate into revenue or profitability, exposing Howmet to risk if end-market demand growth slows or if industry overcapacity leads to margin compression and weaker free cash flow.
  
• Continued reliance on strong demand for commercial aerospace (narrow-body builds, new engine programs, etc.) creates vulnerability to OEM supply chain bottlenecks (as seen with engines for A320 family), production delays, or abrupt changes in aircraft build rates, potentially dampening future revenue growth.
  
• Howmet faces ongoing customer concentration risk, with large portions of revenue tied to major OEMs (Boeing, Airbus, Lockheed); renegotiations of key contracts, unexpected destocking, or changes in procurement behavior could materially impact earnings stability.
  
• The pronounced ramp in headcount and deferred automation suggests a period where labor costs and operational inefficiencies may be elevated relative to peers who aggressively pursue digitalization and Industry 4.0, potentially threatening net margins if productivity gains lag.
  
• Supply chain challenges, prolonged destocking cycles, or longer aircraft/component lifecycles could suppress the aftermarket and spares revenue segment, which has grown to represent a significant portion of Howmet's revenue base, thereby constraining revenue and earnings momentum if replacement demand softens.

Valuation

• The analysts have a consensus price target of $204.306 for Howmet Aerospace based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $225.0, and the most bearish reporting a price target of just $186.0.
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $10.3 billion, earnings will come to $2.2 billion, and it would be trading on a PE ratio of 45.8x, assuming you use a discount rate of 7.7%.
• Given the current share price of $178.98, the analyst price target of $204.31 is 12.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.