On Friday, UBS adjusted its financial outlook for Hexcel Corp . (NYSE: NYSE:HXL) stock, a key player in the aerospace industry. The firm's analyst increased the stock's price target to $69.00 from the previous $67.00 while keeping a Neutral stance.
Hexcel is recognized for its consistent growth in the commercial aerospace sector, even amid production rate changes for Boeing (NYSE:BA) and Airbus models. The company anticipates this growth to persist into 2025, supported by robust aircraft backlogs and a tight supply scenario. Despite a visible growth trajectory, the analyst foresees potential volatility and a higher likelihood of downside risks to consensus estimates than upside potential.
The company's margins have seen a recovery this year, with a two-year incremental margin of 20-30% after facing challenges in the second half of 2023. However, this recovery is progressing at a slower rate than the market consensus had projected. This is partly due to changing production plans from original equipment manufacturers (OEMs), which have resulted in surplus costs for Hexcel.
Hexcel has indicated that it does not expect destocking to occur, and it projects growth from the current production rates for the A350 and 787 aircraft. Nevertheless, the analyst suggests that unforeseen production rate issues, which are beyond Hexcel's control, could exert additional pressure on the company's revenue and margins.
In a strategic move, Hexcel has withdrawn its 2026 guidance, which serves to recalibrate expectations. The valuation of Hexcel's shares remains lower compared to other aerospace stocks that have more exposure to the aftermarket, as per UBS's coverage. Given the anticipated downside risks to consensus estimates, the firm has decided to maintain its Neutral rating on Hexcel Corp.
In other recent news, Hexcel Corporation, a leading manufacturer of advanced composites, has reported significant developments in its financial performance. The company announced an 8% increase in sales during its third quarter 2024 earnings call, reaching a total of $457 million. This growth was driven by a remarkable 17% rise in commercial aerospace sales and a 20% increase in adjusted EPS to $0.47. Despite challenges such as supply chain disruptions and a strike at Boeing, Hexcel has shown resilience.
Wells Fargo, in response to these developments, has maintained an Overweight rating on Hexcel, adjusting the price target from $77.00 to $78.00. The firm noted differing perspectives on Hexcel's financial outlook, with some seeing potential for improved sentiment around aerospace original equipment manufacturers, while others expressed concerns about possible continued delays in production rates for Boeing and Airbus.
In addition to its financial performance, Hexcel reported plans to divest its Austrian plant, which caters to non-core industrial markets. The company also declared a quarterly dividend of $0.15, payable in November 2024. Looking forward, Hexcel anticipates results at the lower end of its guidance range for 2024 and has adjusted its EPS guidance due to a more favorable tax rate of around 19%. These are among the recent developments at Hexcel Corporation.
InvestingPro Insights
Hexcel Corp.'s financial metrics and market performance offer additional context to UBS's analysis. As of the last twelve months ending Q3 2024, Hexcel reported revenue of $1.89 billion, with a revenue growth of 7.14%. This aligns with the company's consistent growth in the commercial aerospace sector mentioned in the article.
The company's P/E ratio of 45.19 suggests a high valuation, which could be reflective of the market's expectations for future growth. This high multiple is consistent with the article's mention of Hexcel's anticipated growth trajectory into 2025.
InvestingPro Tips highlight that Hexcel has been profitable over the last twelve months and analysts predict continued profitability this year. This supports the company's recovery narrative, although the slower-than-expected margin improvement noted in the article may explain why 11 analysts have revised their earnings downwards for the upcoming period.
Interestingly, management has been aggressively buying back shares, which could indicate confidence in the company's future prospects despite the challenges outlined in the UBS analysis. Additionally, Hexcel has raised its dividend for 3 consecutive years, with a current dividend yield of 0.95%, demonstrating a commitment to shareholder returns.
For investors seeking a more comprehensive analysis, InvestingPro offers 5 additional tips that could provide further insights into Hexcel's financial health and market position.
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