Howmet Aerospace Inc.HWMNYSE

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DCF Valuation

DCF Valuation Summary

Strong Sell

Fair Value: $167.15 per share(market-calibrated)

-35.5%

Upside to Fair Value

Current

$259.21

Pure Model

$159.94

Fair Value

$167.15

Bull Case

$209.94

Bear Case

$118.11

Market Reality Check

Model Terminal Growth

2.25%

Market-Implied Growth

7.07%

Calibrated Growth

3.46%

Fair value uses 75% model / 25% market-implied terminal growth. Pure model: $159.94.

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 12.21% 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 $130.01/share (13.2x terminal FCF) while exit multiple gives $189.88/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 $259.21, the market implies 7.07% perpetual growth — 482bps 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)1.25

Market Risk Premium4.50%

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

Cost of Equity (Re)10.12%

Cost of Debt

Pre-tax Cost of Debt6.81%

Tax Rate18.04%

After-tax Cost of Debt5.58%

Equity Weight (E/V)97.17%

Debt Weight (D/V)2.83%

WACC Calculation

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

WACC = (97.17% × 10.12%) + (2.83% × 5.58%)

= 9.99%

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	$668M	$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	$175M	$178M	$226M	$187M	$68M
Free Cash Flow	$2.9B	$3.6B	$4.2B	$5.0B	$5.8B
Discount Factor	0.909	0.752	0.621	0.514	0.386
Present Value	$2.6B	$2.7B	$2.6B	$2.6B	$2.2B

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%

WACC9.99%

TV = FCF₁₀ × (1+g) / (WACC-g)

Terminal Value$76.1B

PV of Terminal Value$29.4B

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$53.6B

Valuation Summary

Perpetuity Growth Method

PV of Projected FCFs$25.5B

PV of Terminal Value$29.4B

Enterprise Value$54.8B

(-) Net Debt$2.3B

Equity Value$52.5B

Shares Outstanding404M

Price per Share$130.01

Exit Multiple Method

PV of Projected FCFs$25.5B

PV of Terminal Value$53.6B

Enterprise Value$79.0B

(-) Net Debt$2.3B

Equity Value$76.7B

Shares Outstanding404M

Price per Share$189.88

Pure Model Fair Value

$159.94

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%
7.99%	$193.23	$197.48	$202.47	$208.40	$215.60
8.99%	$172.56	$175.49	$178.86	$182.77	$187.36
9.99%	$155.47	$157.57	$159.94	$162.64	$165.74
10.99%	$141.01	$142.56	$144.29	$146.22	$148.41
11.99%	$128.58	$129.75	$131.04	$132.47	$134.06

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

$118.11

-54.4% vs current

• -25% vs analyst consensus
• Terminal growth: 2.0%
• Beta: 1.56

Base Case

$159.94

-38.3% vs current

• Analyst consensus
• Terminal growth: 2.3%
• Beta: 1.25

Bull Case

$209.94

-19.0% vs current

• +25% vs analyst consensus
• Terminal growth: 2.8%
• Beta: 1.06

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

Growth Assumptions (Select Years)

Year 1 Revenue Growth12.21%

Year 3 Revenue Growth9.88%

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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