Howmet Aerospace Inc.HWMNYSE

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $171.81 per share(market-calibrated)

-33.2%

Upside to Fair Value

Current

$257.12

Pure Model

$164.57

Fair Value

$171.81

Bull Case

$215.84

Bear Case

$121.89

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

6.70%

Calibrated Growth

3.36%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $164.57.

What's Driving This Ratingfor HWM

✓

CapEx already efficient

CapEx at 3.36% of revenue is already at or below sector maintenance level. No normalization needed — cash conversion is already strong.

✓

Premium margins already priced in

EBIT margin of 40.01% is already well above sector average. The model holds this level — there's limited room for margin expansion to drive upside. Valuation depends primarily on revenue growth.

↑

Strong near-term revenue growth

Analyst consensus projects 12.28% revenue growth in Year 1, fading to 10.59% by Year 5 and 2.25% by Year 10. Revenue reaches $17.8B by Year 10 (vs $8.3B today).

↔

Perpetuity and exit methods disagree

Perpetuity growth gives $135.22/share (13.7x terminal FCF) while exit multiple gives $193.92/share (24.1x terminal FCF). The 18x EV/EBITDA exit reflects current market multiples, while the perpetuity method with 2.25% growth is more conservative. The base case averages both methods.

🎯

Market pricing in higher long-term growth

To justify $257.12, the market implies 6.70% perpetual growth — 445bps above the model's 2.25%. This suggests the market sees additional growth catalysts (AI, new products, market expansion) not captured in analyst estimates.

✓

Strong cash flow conversion

Year 10 FCF/EBITDA conversion of 74.70% indicates efficient cash generation. FCF reaches $5.8B by Year 10 (32.36% FCF margin).

Weighted Average Cost of Capital (WACC)

Cost of Equity (CAPM)

Risk-Free Rate (Rf)4.50%

Beta (β)1.19

Market Risk Premium4.50%

*Using current implied premium (4.5% per Damodaran 2026), not historical (6.5%)

Cost of Equity (Re)9.85%

Cost of Debt

Pre-tax Cost of Debt6.81%

Tax Rate18.04%

After-tax Cost of Debt5.58%

Equity Weight (E/V)97.15%

Debt Weight (D/V)2.85%

WACC Calculation

WACC = (E/V × Re) + (D/V × Rd × (1-Tc))

WACC = (97.15% × 9.85%) + (2.85% × 5.58%)

= 9.72%

10-Year Free Cash Flow Projections(showing years 1, 3, 5, 7, 10)

Year	Year 1	Year 3	Year 5	Year 7	Year 10
Revenue	$9.3B	$11.4B	$13.6B	$15.9B	$17.8B
EBIT	$3.7B	$4.6B	$5.4B	$6.3B	$7.1B
Tax	$669M	$823M	$980M	$1.1B	$1.3B
NOPAT	$3.0B	$3.7B	$4.5B	$5.2B	$5.8B
+ Depreciation	$307M	$378M	$450M	$526M	$590M
- Capex	$311M	$383M	$456M	$533M	$597M
- Δ NWC	$176M	$177M	$226M	$187M	$68M
Free Cash Flow	$2.9B	$3.6B	$4.2B	$5.0B	$5.8B
Discount Factor	0.911	0.757	0.629	0.522	0.395
Present Value	$2.6B	$2.7B	$2.7B	$2.6B	$2.3B

FCF Formula: Free Cash Flow = NOPAT + Depreciation - Capex - Change in Net Working Capital

Terminal Value Calculation

Perpetuity Growth Method

Year 10 FCF$5.8B

Terminal Growth Rate2.25%

WACC9.72%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$78.8B

PV of Terminal Value$31.1B

Exit Multiple Method

Year 10 EBITDA$7.7B

Exit Multiple (EV/EBITDA)18.0x

TV = EBITDA₁₀ × Exit Multiple

Terminal Value$138.8B

PV of Terminal Value$54.9B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$25.8B

PV of Terminal Value$31.1B

Enterprise Value$56.9B

(-) Net Debt$2.3B

Equity Value$54.6B

Shares Outstanding404M

Price per Share$135.22

Exit Multiple Method

PV of Projected FCFs$25.8B

PV of Terminal Value$54.9B

Enterprise Value$80.7B

(-) Net Debt$2.3B

Equity Value$78.3B

Shares Outstanding404M

Price per Share$193.92

Pure Model Fair Value

$164.57

Average of perpetuity growth and exit multiple methods (before market calibration)

Sensitivity AnalysisPrice per Share

WACC ↓ / Growth →	1.25%	1.75%	2.25%	2.75%	3.25%
7.72%	$199.45	$204.17	$209.75	$216.45	$224.64
8.72%	$177.61	$180.83	$184.55	$188.89	$194.03
9.72%	$159.69	$161.98	$164.57	$167.53	$170.96
10.72%	$144.61	$146.28	$148.15	$150.26	$152.65
11.72%	$131.69	$132.95	$134.34	$135.88	$137.61

How to read: This table shows how the valuation changes with different WACC (discount rate) and terminal growth rate assumptions. Green = undervalued, Red = overvalued.

Scenario Analysis

Bear Case

$121.89

-52.6% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.48

Base Case

$164.57

-36.0% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 1.19

Bull Case

$215.84

-16.1% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 1.01

Key Assumptions & Drivers✓ Using Analyst Consensus Estimates• Industrials Sector

Growth Assumptions (Select Years)

Year 1 Revenue Growth12.28%

Year 3 Revenue Growth9.80%

Year 5 Revenue Growth10.59%

Year 7 Revenue Growth7.25%

Year 10 Revenue Growth2.25%

Terminal Growth Rate2.25%

Margin & Efficiency

Current EBIT Margin40.01%

Tax Rate18.04%

Historical Capex / Rev3.36%

NWC / Revenue17.39%

Key Drivers: Revenue growth, operating margin expansion, capex efficiency, and working capital management are the primary drivers of cash flow generation. Terminal value assumptions significantly impact final valuation.

Institutional-Grade Methodology

Actual Company Data: Revenue, EBIT, Capex, NWC, Tax Rate, Interest Expense, Beta

Market Assumptions: Risk-free: 4.5% (10Y), MRP: 4.5% (Damodaran 2026), Exit: 18x EV/EBITDA (Industrials sector)

This DCF model is for informational purposes only. Projections are based on assumptions that may not materialize. Past performance does not guarantee future results. Consult a financial advisor before making investment decisions.

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