During the September 10 episode of Mad Money, a caller questioned whether recent vertical integration by industrial competitors and market selloffs warranted a lower valuation for Howmet Aerospace Inc.’s (NYSE:HWM) economic moat, or if demand remained strong enough to make the pullback an overreaction. Jim Cramer replied:
Now, look, I’ll tell you, here’s the problem… It’s a fastener company, and it frankly is, most times, very commodity-oriented business, and it happens to sell at 44 times earnings, and we don’t want to pay that for commodities even though the business is strong. I think people are saying, “Wait a second, that’s too much to pay, and I’m going to wait till it goes lower.” And if you look at the chart, it does seem like it is going lower.
Proprietary Engine Metallurgy and Expanding Margins
Howmet Aerospace Inc. occupies a sole-source or primary-supplier position across critical narrowbody and widebody aircraft programs, providing single-crystal turbine blades, advanced structural castings, and titanium fasteners. Approval and qualification requirements, manufacturing complexity, and a limited supplier base can make alternative sources difficult to establish quickly. That gives the company strong pricing power on both new plane parts and higher-margin replacement spares.
The structural advantages of Howmet Aerospace Inc.’s business model can be seen in its Q2 financial results. Revenue surged over 24% year-over-year (21% organically) to $2.55 billion, driven by a 28% jump in commercial aerospace revenue, a 38% expansion in industrial gas turbines, and an 11% gain in defense aerospace. The core Engine Products division recorded third-party sales of $1.37 billion, up 32% year-over-year, while segment adjusted EBITDA margins expanded by 470 basis points to 37.7%.
Valuation Multiples, Capex Commitments, and Boeing Delays
Despite its market positioning, Howmet Aerospace Inc. carries valuation risks that advise a cautious approach. Trading at elevated EV/EBITDA and forward P/E multiples relative to traditional industrial peers, the stock leaves little margin for operational missteps. Capital expenditures are projected to exceed $500 million in 2026 as the company builds out production capacity for next-generation engine components and gas turbines, reducing near-term free cash conversion flexibility.
Operational risks also remain tied to commercial aircraft build rates. Continued assembly line bottlenecks, quality control freezes, and delivery delays at key original equipment manufacturers, most notably Boeing, present persistent risks to original-equipment volume forecasts. Furthermore, working capital requirements expanded in Q2 2026, with inventories rising to $2.183 billion to accommodate production ramps, exposing the company to inventory holding costs if OEM build-rate targets stall.
Smart Money Sentiment and Short Interest Dynamics
Institutional sentiment surrounding Howmet Aerospace Inc. remains exceptionally strong across elite asset managers, reflecting confidence in the company. According to Insider Monkey’s database tracking hedge fund holdings, 93 hedge funds held stakes in the company during the second quarter, up significantly from 75 funds in the prior quarter. On the short side, bearish positioning remains minimal. Short interest stands at just 2.15% of the public float, signaling little appetite among short sellers to bet against Howmet’s structural moat and pricing power.
While Howmet Aerospace Inc. faces valuation questions and ongoing commercial aircraft delivery delays, its high-margin engine division and strong institutional backing provide a solid operational foundation. Whether the stock can maintain its momentum depends on how effectively the company navigates broader supply chain bottlenecks to meet sustained aerospace demand.
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