Aerospace & Defense: HWM vs ATI - Which Stock Has More Upside?

The aerospace and defense sector is experiencing a robust recovery, driven by increased commercial aircraft demand and rising defense budgets. Recent earnings from Howmet Aerospace (HWM) and Allegheny Technologies (ATI) highlight this trend. HWM reported 28% growth in commercial aerospace revenue and 11% in defense, raised its 2026 guidance, and increased its dividend by 17%. ATI also impressed with 13% growth in aerospace and defense sales, a record $4.4 billion backlog (up 18%), and a 36% surge in defense revenues.

Both companies benefited from operational efficiencies and strong cash flow generation. HWM's cash flow rose 75% year-over-year, while ATI expanded its adjusted EBITDA margin by 440 basis points. These results underscore the sector's momentum, fueled by pent-up demand for air travel and geopolitical tensions driving defense spending.

The strong performance of HWM and ATI signals a broader upcycle in aerospace and defense. Companies with exposure to commercial aerospace are benefiting from Boeing and Airbus's production ramp-ups, while defense contractors gain from increased government spending. HWM's diversified revenue base and strong cash flow make it a stable winner, but its higher valuation (31x forward P/E) could limit upside if growth slows. ATI's record backlog and margin expansion position it as a standout, especially with its focus on high-margin specialty materials.

However, risks remain. Supply chain disruptions and labor shortages could hinder growth, and elevated valuations across the sector leave little room for error. Investors should favor companies with strong backlogs and improving margins, like ATI, over those with stretched valuations.