Defense and aerospace stocks have had a fairly strong first quarter of 2025. As of March 31, the benchmark iShares U.S. Aerospace & Defense ETF (BATS: ITA) has climbed 17% in the last year and nearly 6% year-to-date (YTD), beating the S&P 500 over both timeframes given the recent correction. But some individual names within the industry have outshone the benchmark, leading the way amid speculation that the Trump administration will lead to favorable regulatory and spending trends for defense.
Howmet Aerospace Inc. (NYSE: HWM) is one of those names—it has surged by an impressive 96% in the last year, and more than 17% YTD as of Mar. 31, just below an all-time high achieved the month prior.
This company, known worldwide for its engine equipment, forged wheels, and other aerospace engineering products, remains a favorite among analysts despite its significant rally.
Fifteen out of 18 analysts rate it a Buy as of the date above.
The firm may be poised for a continued breakout in 2025 thanks to its dominant position in the engine products market, its accelerating sales, and its potential to cater to the fast-growing fuel-efficient aircraft market.
Engine Products Segment Grows 14% YoY in Q4 2024, Boosted by Aerospace and Industrial Gas Turbine Demand
Howmet's Engine Products segment includes products to reduce noise and pollution and increase efficiency in aerospace engines and industrial gas turbines. With 14% year-over-year (YoY) improvement in revenue for the fourth quarter of 2024, it was Howmet's fastest-growing business line last quarter.
Within that segment, industrial engine products sales climbed by 12%, commercial aerospace products by 13%, and aerospace defense products by 19%. Howmet is increasingly dominant in the engine products space across all applications.
What's more, the company's performance in the high-demand industrial gas turbine and commercial aerospace markets is likely to continue to improve, thanks in part to anticipated higher production yields to start 2025.
Natural gas turbine demand is also expected to grow in the coming years as large-scale AI data centers seek reliable sources that can provide steady and constant electricity. As a leading supplier to multiple producers of gas turbines, Howmet is well-positioned to benefit from this trend.
[content-module:TradingView|NYSE: HWM]Howmet Set for Continued Growth, Leveraging Defense Sector and Increased Fastener Demand Amid Supply Challenges
Howmet's sales performance overall is likely to grow, at least in the near term. While industrials stocks, in general, tend to falter during recessions, Howmet's ability to cater to the defense industry gives it a significant leg up on much of the sector.
Further, in the short term, Howmet is likely to benefit from aerospace companies seeking to bolster their supply of fasteners—a critical Howmet product line—in anticipation of higher prices due to tariffs and in response to a February fire at a Philadelphia-area fastener plant for SPS Technologies. This prompted a significant increase in customer demand for Howmet fasteners, allowing the company to prioritize long-term contracts to mitigate cancellation risk in the future if and when prices do rise.
Lightweight Products for Fuel Efficiency
While Howmet benefits from aerospace firms' efforts to maintain older aircraft with costly replacement parts, one of its big drivers of top-line growth in the coming years is likely to be new aircraft builds focused on fuel efficiency. In order to be more efficient, aircraft must be lighter, and Howmet's products are known for being both lightweight and durable.
Howmet's prospective sales growth could attract investors, but based on its recent rally, it remains a costly purchase. The company has a forward P/E ratio of 39.8, and its current price exceeds Wall Street analysts' consensus price target by 5%.
Investors who are bullish about the company's long-term prospects might thus wish to wait until Howmet's current rally slows or its value metrics improve before entering a new position.
Of course, large-scale shifts in the aerospace and defense industries related to major changes to the federal budget could also either derail Howmet's rise or potentially add fuel to the fire, so there is an argument to be made for optimistic investors to buy now, despite the relatively high valuation.
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