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Composite materials -- putting two building materials together to make them stronger than they would be on their own -- have been around for as long as mankind has been building structures. But we've come a long way since we first figured out that straw and mud together can make a brick, and modern composite materials, like carbon fiber, are becoming increasingly important in a number of technology markets, especially the aeronautics field. Lightweight and super-strong, Goldman Sachs estimates at the next generation of aircraft could be made up of as much as three-fourths composite material, and this is why I think there are some great opportunities to be found in Hexcel Corporation (NYSE: HXL), a California-based company that has been making technologically advanced composite materials since the 1940s.
Hexcel's strongest sales have always been to the aeronautics industry. The company's longstanding relationship with Boeing (NYSE: BA), among other aircraft builders, has kept profits high over the past year, with operating earnings up 26% in the last quarter.
Contracts with Airbus (a subsidiary of European Aeronautics) to provide products for the new Airbus A380 should finally pay off as well, as the first A380 was delivered this month after many delays. There's also hope that Hexcel will be chosen as a preferred supplier by Airbus for the A380, as Hexcel has been a prime supplier for Airbus since the aviation company first started using composite materials in the 1970s. The company has also benefited from the strong space and defense markets, with sales in that sector up 12% over last year.
But there's more than just airplanes keeping Hexcel aloft. A relatively small, but increasingly important part of Hexcel's profits have been coming from sales of wind turbine blades. Wind-generation farms, like other clean energy sources, will become more and more common as governments offer incentives for their construction -- and Hexcel is poised to take advantage of it. In fact, Hexcel's sales in this market have already been growing over 15% annually.
As the market for carbon fiber gets tighter, Hexcel has responded by expanding its production capacity by 50% over the next three years, to make sure it has the materials it needs to make its products. This may mean a slight profit downturn as the expansion gets up and running -- but if you stick with it, you should see some great returns in the long run.
Type of Stock: Hexcel Corporation develops and manufactures advanced composite structural materials. The company's products have a wide variety of applications, including aerospace and military applications as well as consumer goods.
Price Target: Goldman values Hexcel at $24.99 -- I'd try to pick it up at $20 or under which may be possible given that this stock market correction may continue to bring all stocks down (even good ones).
Hilary Kramer,author of the newly released Ahead of the Curve, is a financial editor and money coach for AOL and an authority on investing.
But there's more than just airplanes keeping Hexcel aloft. A relatively small, but increasingly important part of Hexcel's profits have been coming from sales of wind turbine blades. Wind-generation farms, like other clean energy sources, will become more and more common as governments offer incentives for their construction -- and Hexcel is poised to take advantage of it. In fact, Hexcel's sales in this market have already been growing over 15% annually.
As the market for carbon fiber gets tighter, Hexcel has responded by expanding its production capacity by 50% over the next three years, to make sure it has the materials it needs to make its products. This may mean a slight profit downturn as the expansion gets up and running -- but if you stick with it, you should see some great returns in the long run.
Type of Stock: Hexcel Corporation develops and manufactures advanced composite structural materials. The company's products have a wide variety of applications, including aerospace and military applications as well as consumer goods.
Price Target: Goldman values Hexcel at $24.99 -- I'd try to pick it up at $20 or under which may be possible given that this stock market correction may continue to bring all stocks down (even good ones).
Hilary Kramer,author of the newly released Ahead of the Curve, is a financial editor and money coach for AOL and an authority on investing.
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Reader Comments (Page 1 of 1)
11-17-2007 @ 4:36PM
Gerry said...
My understanding is that Hexcel has hired an investment banking firm to investigate how the company might "maximize shareholder value." Is this your understanding as well and what does it portend to you. Also, Hexcel is currently selling at the price that Goldman has indicated is a fair price target. Hold? Sell?
11-16-2007 @ 5:02PM
Crudetrader said...
Last time I checked Hexel was a Connecticut-based company. Did I miss a bi-coastal move?