On Monday, RBC Capital initiated coverage on Howmet Aerospace Inc. (NYSE:HWM (BMV:HWM)), a supplier of high-quality aero engine components, with an Outperform rating and a price target of $75.00. The firm's positive outlook for Howmet is rooted in its status as a key player in original equipment (OE) exposure for the aerospace industry.
The coverage highlights several factors that underpin RBC Capital's favorable view of Howmet. These include the potential for upside from strategic capital allocation, the company's ability to expand margins, which is considered best-in-class, and the prospects for incremental debt reduction.
While acknowledging Howmet as a popular investment, RBC Capital maintains that the company's role in the aerospace sector will continue to attract investor interest. The firm's analysis suggests that Howmet's association with Airbus, in particular, is a beneficial aspect given the current market conditions.
RBC Capital's price target for Howmet is derived from applying a 17.5 times multiple to the projected adjusted EBITDA for the year 2025, which is estimated to be around $1.9 billion. This valuation reflects confidence in Howmet's financial trajectory over the next few years.
The report also notes a primary risk factor for Howmet, which is the potential for a deceleration in aircraft production rates. However, the firm indicates that Howmet's greater exposure to Airbus production could mitigate this risk to some extent.
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