It's time to buy the dip on this key aerospace supplier. Why the shares can rebound
I’m a momentum trader, and I’m always looking for stocks where the potential reward outweighs the risk. Today I’ve got my eye on Howmet Aerospace . The Pittsburgh-based company makes some of the most critical components in jet engines and power turbines. Think: turbine blades that withstand extreme heat, along with the fasteners that hold aircraft together. Howmet supplies major aerospace manufacturers, including GE Aerospace, and has a leading position in the market for high-performance turbine components. Key points Strong third-quarter earnings showed the business is still growing rapidly, despite concerns about competition. Management raised its full-year outlook and expects more growth in 2027. Howmet is buying back billions in stock, and shares are now even cheaper. Howmet’s stock has fallen roughly 30% from its August high, even after the company delivered strong earnings. Investors are worried about new competition. GE Aerospace is acquiring a rival turbine-parts supplier, while SpaceX plans to start making its own turbine blades. But I think the market is overreacting. It could take years for these moves to meaningfully threaten Howmet’s business, which continues to deliver strong results today. HWM YTD mountain Howmet Aerospace, YTD Why I’m buying The company just delivered a great quarter In Howmet’s third-quarter results, revenue jumped 29% from a year earlier to $2.7 billion, including 25% organic growth. Adjusted earnings per share climbed 54% to $1.46, beating Wall Street’s estimate of $1.37. Adjusted EBITDA margin reached 32.5%, showing that Howmet is generating strong profitability. Those are impressive numbers for a company whose stock has been under so much pressure. Management sees more growth ahead Howmet raised fourth-quarter earnings-per-share guidance to a range of $1.49 to $1.51, compared to the consensus estimate of $1.42 from analysts. It then raised EPS guidance for the full year to a range of $5.45 to $5.51. Companies with a broken moat do not raise guidance for the quarter and for the year in the same release. Howmet is putting billions behind its own stock The company has repurchased $1.1 billion in stock so far this year. At the end of last month, the company authorized an increase its share-purchase program to $5.4 billion, up from $5 billion. Why now? I’m not dismissing the competitive threat from new suppliers, but Wall Street agrees with me that this is already priced into the stock. Analysts still see the shares rebounding by more than 35% over the next 12 months. Bottom line This crucial player in the aerospace pipeline is fundamentally strong and getting stronger. The company is investing alongside you with its robust share buyback. Steven Grasso is the CEO of Grasso Global Inc. He began his finance career in 1993 on the trading floor of the NYSE, rising to Executive Floor Official and Governor. Disclosures: Grasso does not own shares personally. All opinions expressed by the [CNBC Pro contributors] are solely their opinions and do not reflect the opinions of CNBC, or its parent company or affiliates, and may have been previously disseminated by them on television, radio, internet or another medium. This content is provided as part of our editorial output for informational purposes only and does not constitute financial, investment, tax or legal advice or a recommendation to buy any security or other financial asset. The content is general in nature and does not reflect any individual’s unique personal circumstances. The above content might not be suitable for your particular circumstances. Before making any financial decisions, you should strongly consider seeking advice from your own financial or investment advisor. THIS CONTENT IS PROVIDED FOR INFORMATIONAL PURPOSES ONLY AND DOES NOT CONSTITUTE FINANCIAL, INVESTMENT, TAX OR LEGAL ADVICE OR A RECOMMENDATION TO BUY ANY SECURITY OR OTHER FINANCIAL ASSET. THE CONTENT IS GENERAL IN NATURE AND DOES NOT REFLECT ANY INDIVIDUAL’S UNIQUE PERSONAL CIRCUMSTANCES. THE ABOVE CONTENT MIGHT NOT BE SUITABLE FOR YOUR PARTICULAR CIRCUMSTANCES. BEFORE MAKING ANY FINANCIAL DECISIONS, YOU SHOULD STRONGLY CONSIDER SEEKING ADVICE FROM YOUR OWN FINANCIAL OR INVESTMENT ADVISOR. Click here for the full disclaimer.
