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  • Writer's pictureAbacus Research

Hexcel (HXL): Visible growth with margin inflection

Hexcel is an attractive, high ROIC business with limited competition and strong underlying organic growth trends. 

  • Near term, it is all about margin expansion and incremental margins rebounding. We expect incremental margins of 2019 onwards to surprise the market after a disappointing 2018, which had a number of headwinds.

  • We like the secular increasing penetration of composite materials in Aerospace. The latest planes A350 and B787 have shown the way with 50% composite content. High volume planes are still at ~10% composite content. We believe there is plenty of room for increasing content growth, but it does not happen linearly.

  • We expect HXL to grow at 7-9%pa organically for the foreseeable future as content in aerospace continues to growCyclical aspect of growth looks ok for now, although our ability to notice / our record in discounting cyclical turning points is poor.

Potential Upside: $90 (+25%): DCF based, 2020 revenue assumption 5.7% above consensus.

Sensible Downside: $62 (-13%): Barring a recession, downside looks limited to us.

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