Episode Details

Howmet Aerospace Inc. (HWM) Q2 2026 — Revenue $2,547M UP 24% (21% organic). Adjusted EPS $1.33 vs a $1.24 bar, UP 46%. Adjusted EBITDA $817M, a 32.1% margin, UP 340bps. Free cash flow $479M. FY2026 guidance RAISED a third time, to $5.27. All three metrics cleared the TOP of the company's own raised range. The stock hit an all-time high near $300. Almost every 'beat' is a beat against a bar somebody quietly cut. This is the opposite. Howmet raised its own guide in February, raised it again in May, then printed ABOVE the TOP of that raised range on revenue, EBITDA and EPS - and raised the full year a third time. Seventy-three percent of that raise is FORWARD, not this quarter's flow-through. Nothing is wrong with this quarter. The problem is the price: at ~$300, an all-time high, HWM is 56.9x the earnings guide it raised this morning, and Wall Street's OWN average target of $299.18 already sits BELOW the stock. Our blend says ~$185. THE CALL: OVERVALUED (3/5, AN ELITE BUSINESS, AT A PRICE THAT ALREADY KNOWS IT) — base-case value ~$185.0 vs ~$300.03 today. KEY METRICS: - THE CALL: OVERVALUED 3/5, fair value ~$185 vs the ~$300.03 print-day price (-38%). Street: 25 analysts, 21 Buy / 3 Hold / 1 Sell, $299.18 average - ALREADY BELOW the price (low $228, high $340). Four roads, all below today: DCF $114; generous DCF $184; 40x FY2028E $7.35 back two years $247; 36x the 2026 EBITDA guide $281. Weighted 40/20/25/15 = $185. Even the BULL case is 18% below. - THE PRINT: Revenue $2,547M, +24% (organic +21%). Adjusted EPS $1.33 vs a $1.24 bar, +46%. Adjusted EBITDA $817M, +39%, a 32.1% margin, +340bps. Operating income $711M, +36%. Free cash flow $479M, +39%, after $104M capex; $838M across six months, +75%. Commercial aero +28%, defence +11%, gas turbines +38%. This was NOT a beat against a cut bar. - THE BAR WENT UP AND THEY CLEARED IT. Guided on May 7 to revenue $2,390-2,410M, adjusted EBITDA $760-770M, adjusted EPS $1.22-1.24. Printed $2,547M ($137M / 5.7% above the TOP), $817M ($47M / 6.1% above the TOP) and $1.33 ($0.09 / 7.3% above the TOP). The $1.24 'consensus' was simply the top of the company's own range copied across. Three for three, above the high end, not the midpoint. - 73% OF THE FULL-YEAR RAISE IS FORWARD. The FY2026 adjusted-EPS baseline went $4.94 to $5.27, +$0.33 - but the quarter only beat by $0.09, so $0.24 (73%) is a SECOND-HALF raise. Revenue guide +$400M vs a $147M beat = $253M (63%) forward. EBITDA guide +$170M vs a $52M beat = $118M (69%) forward. The FY2026 EPS guide has gone $4.45 (Feb) to $4.94 (May) to $5.27 (Aug) - up 18.4% in six months. - THE PRICE IS THE PROBLEM. At $300.03, market cap $120.0B plus $3,938M net debt = $124.0B EV - 44.2x trailing adjusted EBITDA of $2,808M against Heico 40.1x, GE Aerospace 33.8x, RTX 20.8x, TransDigm 20.4x. The most expensive name in its own sector. 56.9x the RAISED $5.27 guide; 65.3x guided FCF of $1,900M, a 1.58% yield. Reverse DCF: $300 needs FCF compounding 27.7% then fading to $11.9B by 2036 - 6.3x this year's guide. - SOURCE: 8-K filed 2026-08-06, accession 0001104659-26-091610, ACCEPTED 07:00:35 Eastern - BEFORE the open - Exhibit 99.1, so ~$300.03 IS the reaction, not a stale close. Prior bar: 8-K of 2026-05-07. Howmet Aerospace, CIK 0000004281. GAAP and adjusted EPS are both $1.33 - a coincidence of $18M of CAM costs added back and an $18M discrete tax benefit removed. What to watch: UP: a 2027 guide above $6.50 of adjusted EPS with capex held under 6% of revenue, or Fastening Systems margins clearing 32% as CAM integrates. BEAR: free-cash-flow conversion falling below 80% of net income on the 2027 capex cycle, gas-turbine growth decelerating below 20%, or a quarter that merely MEETS the guide instead of clearing the top of it. Also on YouTube: @ChargedAlpha DISCLAIMER: For informational and educational purposes only. Not financial advice. Do your own research before any investment decision.