Don't Buy SpaceX Until You Consider These 2 Aerospace and Defense Stocks With 10% EPS Growth

Howmet Aerospace and TransDigm are highlighted as high-margin aerospace stocks with strong earnings growth, recurring aftermarket demand, and aggressive bolt-on acquisition strategies. Howmet reported Q1 revenue of $2.3B, up 19%, EPS of $1.44, up 71%, while TransDigm posted Q2 revenue of $2.54B, up 18.3%, EPS of $9.20, up 11.6%, and raised fiscal 2026 revenue guidance by $420M to $10.3B-$10.42B. Both companies are also returning capital via buybacks and expanding through M&A, supporting a constructive outlook.

Analysis

The market is underappreciating that both names are essentially operating leverage plays on the same bottleneck: airlines and defense primes are forced to extend the life of existing fleets because OEM delivery schedules remain constrained. That creates a second-order winner set beyond the headline names — engine overhaul shops, MRO distributors, and any supplier with sole-source or certification-protected content — while commoditized build-to-print vendors should lag as mix shifts away from new aircraft production. The key distinction is that this is not a temporary backlog trade; it is a multi-year installed-base monetization cycle, and the margin expansion embedded in that mix shift should persist even if unit growth moderates.

HWM has the cleaner “surprise” setup because the market tends to model it as cyclical aerospace exposure, while the gas turbine/data center angle creates an underappreciated parallel growth vector with different demand drivers and longer contract visibility. That reduces dependence on a single end market and makes guidance less fragile if commercial aerospace normalizes faster than expected. The acquisition cadence and repurchase activity also matter because they compress the time needed for EPS to catch up to operating growth, which increases the odds of continued beat-and-raise quarters rather than one-off upside.

TDG remains the higher-quality compounder, but consensus already prices in a premium moat story, so the risk is multiple compression if aftermarket growth decelerates even modestly or if acquired revenue proves less accretive than expected. The bigger near-term catalyst is not top-line growth itself, but evidence that pricing power can survive a slower flight-cycle environment without customer pushback. If airline maintenance budgets tighten, the first-order volume effect may be smaller than feared, but the second-order risk is greater scrutiny on distributor margins and procurement timing, which could slow buybacks and M&A accretion.

Key Decisions for Investors

• Long HWM on a 3-6 month horizon; favor entry on any post-earnings pullback. Risk/reward is attractive because the market is likely underweighting the gas turbine growth bridge and integration upside from recent M&A.
• Long TDG, but size smaller than HWM and treat as a core compounder rather than a momentum trade. Best entry is on weakness after any quarter where aftermarket growth prints merely in-line, since the structural moat still supports mid-teens EPS compounding.
• Pair trade: long HWM / short a lower-quality aerospace supplier with more OEM exposure and less aftermarket mix. The spread should benefit if fleet-age effects persist and investors pay up for margin durability over cyclical beta.
• Use call spreads on HWM or TDG into the next 1-2 earnings prints if implied vol is reasonable. The setup favors continued beat-and-raise, but defined-risk upside is preferable because M&A execution and procurement sensitivity can create sharp single-quarter drawdowns.
• Watch for signs of OEM delivery normalization over the next 6-12 months; if visible, trim exposure to the names with the most exposed aftermarket multiple. The trade is not to abandon aerospace, but to rotate toward the strongest IP moat and capital allocation track records.