Executive Summary / Key Takeaways

• Howmet Aerospace has solidified its position as a specialized leader in advanced engineered solutions, leveraging its proprietary lightweight metal technologies to drive robust growth in critical aerospace and industrial gas turbine (IGT) markets.
• The company delivered record financial performance in Q3 2025, with revenue growth accelerating to 14% year-over-year, supported by strong commercial aerospace demand and exceptional profitability, including a 29.4% EBITDA margin.
• Strategic capacity expansions in Engine Products and IGT, backed by customer contracts and driven by surging data center electricity demand, are poised to unlock significant future revenue streams and reinforce Howmet's technological moat.
• A fortress balance sheet, marked by a record-low net debt-to-EBITDA of 1.1x and recent credit rating upgrades, provides substantial capital deployment optionality, including increased share buybacks and dividends.
• Despite some near-term market uncertainties in commercial transportation and potential OEM build rate fluctuations, Howmet's strong competitive positioning, technological differentiation, and disciplined operational execution underpin a compelling investment thesis for sustained long-term value creation.

The Unseen Engine of Progress: Howmet's Strategic Ascent

Howmet Aerospace Inc. stands as a global leader in lightweight metals engineering and manufacturing, providing indispensable, innovative, multi-material products across the commercial and defense aerospace, commercial transportation, and industrial sectors. The company's current focused identity is the result of a deliberate and successful transformation, shaped by its strategic separations from Alcoa Corporation (AA) in 2016 and Arconic Corporation (ARNC) in 2020. This evolution has culminated in a pure-play entity that, as management notes, is now more valuable than the single Alcoa company ever was.

Howmet's overarching strategy centers on leveraging its deep material science expertise and advanced manufacturing processes to deliver high-performance components. This approach is particularly critical in industries where precision, durability, and weight reduction translate directly into operational efficiency and cost savings for its customers. The company's foundational strength lies in its differentiated technology, which is crucial for components made from nickel, titanium, aluminum, and cobalt.

The industry landscape provides a fertile ground for Howmet's specialized offerings. Commercial aerospace backlogs are at record levels, driven by an aging global fleet and the urgent need for more fuel-efficient aircraft with lower carbon emissions. Simultaneously, the industrial gas turbine (IGT) market is experiencing "extremely strong" demand, fueled by the global build-out of data centers and their insatiable need for reliable electricity. These broad industry trends underscore the strategic importance of Howmet's core capabilities.

Technological Leadership: The Core of Howmet's Moat

Howmet's competitive advantage is deeply rooted in its advanced technological differentiators, particularly in investment castings for aircraft engines and industrial gas turbines. The company is at the forefront of developing and manufacturing sophisticated turbine blades, transitioning from solid designs to increasingly "cored" structures. These cored blades feature intricate internal air pathways that enable turbines to operate at significantly higher temperatures, directly improving engine efficiency and performance. Howmet is actively installing capabilities to produce these sophisticated, fine-tolerance cores, pushing the boundaries of material science and manufacturing precision.

This technological evolution is not confined to aerospace. The company's IGT turbine blades are mirroring the complexity of their aerospace counterparts, with some initial designs achieving sophistication comparable to advanced commercial aerospace applications in terms of air pathways. This translates into increased content and value for Howmet's products within these critical components.

Beyond product design, Howmet is pioneering a "digital thread" throughout its manufacturing processes. This initiative integrates data from chemical compounding through core preparation, shell building, and casting, providing individual traceability for each manufactured part. The immense volume of data collected is then leveraged with artificial intelligence (AI) and machine learning. This advanced analytics capability aims to significantly improve manufacturing yields, reduce scrap rates, and enable even tighter design tolerances. For investors, this technological roadmap is paramount: it strengthens Howmet's competitive moat, drives higher average selling prices (ASPs), lowers manufacturing costs, enhances margins, and solidifies its market positioning for long-term growth by continuously delivering next-generation content and fuel efficiency improvements.

Strategic Expansion and Operational Prowess

Howmet's commitment to growth is evident in its strategic capacity expansion and relentless pursuit of operational excellence. The company is actively building out its global footprint with five new manufacturing plants or extensions. A new Michigan Aero Engine core and casting plant is on track, with machines already producing parts and significant equipment installation planned for the next six months, targeting salable output by Q4 2025 and into 2026. Complementing this, new facilities for large IGTs are under construction in Japan and Europe, with output expected in the second half of 2026 and full production by 2027. These substantial capital expenditures are not speculative; they are backed by solid, long-term customer agreements, reflecting management's disciplined approach to investment with high hurdle rates for economic return.

This expansion necessitates a significant increase in workforce, with approximately 1,125 incremental headcount added year-to-date through Q3 2025 in the Engine Products segment alone. While this creates a near-term margin drag due to training and initial inefficiencies, it is a strategic investment positioning the company for future revenue growth. Howmet's operational prowess is also demonstrated through continuous productivity gains, improved process control, and scrap reduction initiatives across its segments. For instance, in its aircraft wheels business, detailed process examinations have led to a 10% to 15% increase in production and extraordinary improvements in scrap reduction.

The company has also strategically rationalized its portfolio, exiting underperforming businesses within Engineered Structures, including the sale of a U.K. manufacturing facility and the closure of another European plant in early 2024. These actions have contributed to significant margin improvements in the segment, showcasing a disciplined approach to maximizing profitability.

Financial Strength and Shareholder Returns

Howmet Aerospace delivered a stellar financial performance in the third quarter of 2025, underscoring the effectiveness of its strategic initiatives. Revenue growth accelerated to 14% year-over-year, reaching $2.09 billion, compared to 8% in the first half of the year. This growth was primarily fueled by a 15% increase in commercial aerospace revenue, with commercial aero part sales surging 38% and total spares increasing by 31%. EBITDA for Q3 2025 rose 26%, and operating income increased 29%, demonstrating strong operating leverage. The EBITDA margin expanded by 290 basis points to 29.4%, even while absorbing the costs associated with increased headcount for future growth. Net income for the quarter was $385 million, or $0.95 per diluted share, up 34% year-over-year.

Segment-wise, Engine Products achieved record revenue of $1.105 billion, up 17%, and a record EBITDA of $368 million, up 20%, with an EBITDA margin of 33.3%. Fastening Systems also posted record revenue of $448 million, up 14%, and EBITDA of $138 million, up 35%, with a robust EBITDA margin of 30.8%. Engineered Structures saw revenue climb 14% to $289 million and EBITDA soar 53% to $58 million, resulting in a 20.1% EBITDA margin, driven by manufacturing footprint optimization and product mix rationalization. Even the Forged Wheels segment, facing a challenging commercial transportation market, delivered a strong EBITDA margin of 29.6% on essentially flat revenue, achieved through cost reductions and a favorable product mix.

Howmet's liquidity and balance sheet remain exceptionally strong. Cash provided from operations for the nine months ended September 30, 2025, increased 50% to $1.23 billion. The company's net debt-to-EBITDA ratio improved to a record low of 1.1x. This financial strength has been recognized by major credit rating agencies, with S&P upgrading Howmet's long-term debt rating to BBB+ in Q3 2025, three notches into investment grade, citing strong demand, margin gains, and debt reduction. Fitch also upgraded Howmet's ratings in March 2025, and Moody's upgraded them in August 2024.

Capital deployment reflects this robust financial health and management's confidence. Howmet deployed $200 million for common stock repurchases in Q3 2025, with an additional $100 million in October, bringing year-to-date buybacks to $600 million. The company also paid off the remaining $63 million of its U.S. term loan early, reducing annualized interest expense by approximately $8 million. The quarterly common stock dividend was increased by 20% in Q3 2025 to $0.12 per share, representing a 50% increase from Q3 2024.

Competitive Landscape and Strategic Positioning

Howmet Aerospace operates within a highly competitive landscape, primarily against diversified industrial giants like RTX Corporation (RTX), GE Aerospace (GE), and Honeywell International (HON). While these competitors offer broader portfolios, Howmet's strategic advantage lies in its specialized focus and deep expertise in advanced materials and precision manufacturing for mission-critical components.

In engine products, Howmet's offerings in investment castings and seamless rolled rings directly compete with segments of GE Aerospace and RTX. Howmet's technological edge in lightweight alloys and sophisticated cored turbine blades provides a unique value proposition, offering superior performance and fuel efficiency. This specialized focus allows Howmet to achieve strong margins comparable to its aerospace turbine business, differentiating it from competitors who may prioritize broader system integration.

The Fastening Systems segment competes with both RTX and Honeywell in aerospace fastening solutions. Following a facility accident at Precision Castparts (PCC) in Q1 2025, Howmet has seen an increase in orders, securing approximately $40 million in new business by Q3 2025, with hundreds of additional part numbers still being quoted. This demonstrates Howmet's ability to capture market share when competitors face disruptions, highlighting its operational readiness and customer trust.

Engineered Structures, with its focus on titanium and aluminum forgings for aerospace and defense, positions Howmet as a critical supplier for airframe, wing, and engine components. While larger competitors may have greater R&D budgets, Howmet's vertical integration and process control, as evidenced by its margin improvements, allow for cost-effective and high-quality production. The F-35 program is a significant driver, with F-35 spares revenue expected to exceed original equipment (OE) engine revenue in 2025 or early 2026.

Howmet's competitive position is further bolstered by high barriers to entry in its core markets, including substantial capital requirements, stringent regulatory approvals, and specialized manufacturing expertise. These factors limit new entrants and help Howmet defend its market share and sustain its strong financial performance. The company's strong relationships with major OEMs like Boeing (BA), Airbus (EADSY), RTX Corporation, and GE Aerospace (which represented 11% and 10% of third-party sales respectively in 9M 2025) are also critical.

Outlook and Key Risks

Howmet's outlook for 2025 and 2026 is robust, underpinned by strong demand in its core markets and strategic investments. For Q4 2025, the company projects revenue of $2.1 billion (plus or minus $10 million), EBITDA of $610 million (plus or minus $5 million), and EPS of $0.95 (plus or minus $0.01). Full-year 2025 guidance has been raised across all metrics, with expected revenue of $8.15 billion (plus or minus $10 million), EBITDA of $2.375 billion (plus or minus $5 million), EPS of $3.67 (plus or minus $0.01), and Free Cash Flow of $1.3 billion (plus or minus $25 million).

Looking to 2026, Howmet anticipates revenue of approximately $9 billion, representing a year-over-year increase of about 10%. This growth is supported by several key assumptions: Commercial Aerospace is expected to be stronger, with Boeing 737 MAX production reaching the 40s per month, Airbus A320 in the early 60s, Boeing 787 at 7.5, and Airbus A350 at 6.5-7. Defense Aerospace is projected for a mid-single-digit increase, building on strong 2025 performance. The Industrial and Other markets, particularly IGT, are expected to see double-digit growth, driven by both OE and strong spares demand. The commercial truck market is anticipated to stabilize in 2026.

Despite this positive outlook, several risks warrant attention. The timing and level of future aircraft builds by OEMs remain subject to uncertainties, potentially impacting product mix and results. Ongoing changes in U.S. and international government policies, including tariffs, could disrupt supply chains and increase costs, though Howmet expects the net tariff drag to be small (sub-$5 million for 2025) due to effective pass-through mechanisms and trade programs. The commercial transportation market is expected to continue struggling in 2025 due to low freight rates and high truck prices, posing a headwind. Additionally, bottlenecks in narrow-body engine production, with Airbus reportedly having 60 aircraft awaiting engines, could impact delivery schedules.

Conclusion

Howmet Aerospace has successfully transformed into a highly focused and financially robust leader in advanced engineered solutions, capitalizing on its technological prowess and operational discipline. The company's strategic investments in capacity expansion, particularly in the high-growth aerospace and industrial gas turbine markets, are directly aligned with secular demand trends driven by an aging aircraft fleet and the burgeoning electricity needs of data centers. Howmet's ability to consistently deliver strong financial results, marked by accelerating revenue growth, expanding margins, and exceptional free cash flow generation, underscores the effectiveness of its strategy.

With a fortress balance sheet providing significant capital deployment flexibility and a clear roadmap for future growth, Howmet is well-positioned to continue its trajectory. While market uncertainties and competitive dynamics persist, the company's deep technological moat, specialized market leadership, and proactive management of risks reinforce a compelling investment thesis. Howmet's journey from a diversified conglomerate to a focused, high-performance entity demonstrates its capacity for sustained value creation, making it a noteworthy consideration for discerning investors seeking exposure to critical aerospace and industrial growth drivers.