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Aerospace: Submitting Our Industry Flight Plan For 2021

Ahead of the quarterly updates set to be released by several aerospace-levered companies over the next few weeks, and the swearing-in of President Joe Biden, we are submitting our Aerospace Flight Plan For 2021, broadly defined as an industry preview and data point refresher. The intention of this report is to provide a simple listing of industry headlines expected to materialize over the next twelve months that could sway investor sentiment or become a catalyst for estimate revisions on individual companies. We sat down over the weekend and updated our industry models to fully reflect our increasing conservative macro-outlook and to match some of the new data points provided by channel contacts. Continue reading

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1:04 PM

The Boeing Company (BA): Downgrading To Underperform On Commercial Aircraft Demand And Balance Sheet Concerns

We downgraded the shares of The Boeing Company (BA) to UNDERPERFORM this evening following a thorough review of important macro drivers and the secondary data collected from our aero supplier surveys. Ahead of the company’s 4Q earnings update, scheduled for late-January, we believe BA shares could dip below $200 should the investor focus shift to a muted earnings growth outlook and balance sheet stress. Coincidently, we are also less-bullish on our beloved Cleveland Browns heading into the Sunday playoff game, but we digress… Continue reading

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4:47 PM

Hexcel Corporation (HXL): What Are The Odds The Dreamliner Turns Into A Supplier Nightmare?

We cannot recall another time during our long history in sell-side research when the best idea highlighted from our coverage was: investors should avoid the entire peer group right now. Ultimately, we deemed it more appropriate to shift the note topic to the new developments detected in our propriety channel checks that may be interpreted as bearish by investors. We lowered earnings estimates for two of The Boeing Company suppliers potentially over-levered to the Dreamliner program: Hexcel Corporation (HXL) and Allegheny Technologies (ATI). Continue reading

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8:19 AM

The Titanium Snapshot – December Update

Feedback coming out of the specialty materials channel supports the bearish call we are making on the global titanium market and selected companies within the specialty materials peer group. Bottomline, raw material providers, mill contacts, metal distributors, fabricators, and premium forgers are all voicing concerns about an extended period of end-demand weakness, a difficult CY21 environment, operating inefficiencies, and destabilized pricing environment.

Names within in our coverage universe with titanium leverage include Allegheny Technologies (ATI), Howmet Aerospace (HWM), Carpenter Technology (CRS) and Haynes International (HAYN). Continue reading

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2:10 PM

Aerospace: The Runway To Recovery Will Be Long And Bumpy For Upstream Suppliers

Consensus estimates still look aggressive, in relation to fundamentals, for aerospace suppliers levered to premium forge, composite materials, metal fabrication, and raw materials. We believe the tier-3/4 peer group may still be 4-5 quarters away from an inflection point, which could be followed by muted demand in CY22 regardless of the COVID-19 vaccination outcome. After updating various industry models, we generated a CY21 baseline growth forecast for upstream aero suppliers at down 12-13% for CY21. We also lowered estimates on Allegheny Tech (ATI) and Hexcel Corp (HXL) this morning, after completing this market analysis and reviewing the negative survey data points referenced in this report. Continue reading

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8:32 AM

The Boeing Company (BA): 3Q20 Results Were Generally In-line, But CY21 Visibility May Be Waning

Despite a relatively solid earnings update, which beat our forecast for the first time in four quarters, we are unable to construct a convincing bull-case argument. We ultimately came away with from yesterday’s update with limited earnings and FCF visibility, still digesting the conservatism embedded in management’s commentary. While there were no formal changes made to aircraft build rates, downward adjustments seem almost inevitable against the backdrop of waning demand. Continue reading

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7:58 AM

Aerospace: Airbus Is Not Budging On The A320

The Airbus management team appears to be sharing their production strategy and updated aircraft build schedules with suppliers this week, which includes an intention of holding the A320 rate steady at 40/month (well into 2021). Granted, there is lingering contact apprehension about the global airline operator willingness to accept these new jets (during the slow season), but today those comments were drowned out by the collective sound of channel relief. As we reported last week, […]

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3:35 PM

Hexcel Corporation (HXL): A Risky Long Without Stabilization, A Riskier Short With Vaccines

We are moving the investment rating on Hexcel Corporation (HXL) to a HOLD, conceding to a limited number of catalysts looking out 3-4 months. Consistent with views expressed in a recently issued Boeing (BA) upgrade note, we no longer expect valuations and/or investor sentiment around the aerospace peer group to be determined by changing fundamentals. Instead, the trading momentum will most likely be dictated by headlines, with emphasis placed on COVID-19 vaccination updates and/or reported changes to the MAX approval timeline Continue reading

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9:00 AM

Hexcel Corporation (HXL): Results Were Disappointing And This Might Not Be The Bottom For Aero Suppliers

Hexcel Corporation (HXL) kicks off what is likely to be considered an awful earnings week for most aerospace suppliers and the specialty materials group. Not only did the company’s 2Q20 EPS results, reported last night, fall well below expectations due to the pronounced commercial aerospace sales demand weakness and strong inventory headwinds, but we expect any forward-looking commentary to remain guarded. Conservatism would align with the new feedback coming out of the aero channel over the past two weeks. Continue reading

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5:00 PM

Hexcel Corporation (HXL): One Step Forward, And Ten Steps Back? Downgrading The Shares

We are downgrading Hexcel Corporation (HXL) to an UNDERPERFORM recommendation as the shares have traded beyond our target price. More importantly, we are becoming increasingly concerned about the latest information coming out of the aerospace channel, once again suggesting Airbus is about to lower the production rate on the A320. The number being discussed within the channel is 30/month, representing a 25% cut to the current rate – a looming negative catalyst for HXL and many other companies we track in the lower tiers. Continue reading

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5:05 PM

The Boeing Company (BA): Those Parked Jets And BA Shares Will Fly Again

We are upgrading the shares of The Boeing Company (BA) to an OUTPERFORM recommendation (versus a sell), expecting the aerospace industry and individual company headlines to be less-negative going forward. The current share price of $120 seemingly discounts all of the main risk(s) associated with a difficult 1H20 customer demand environment and potential 2Q earnings shortfall. Our commercial aerospace channel checks have been pointing south for most of the year, including the subdued contact feedback […]

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9:00 AM

The Boeing Company (BA): The Type of Turbulence It Could Take Years To Recover From – Starting Coverage With A SELL

We are initiating formal coverage on the shares of The Boeing Company (BA) with a SELL recommendation and a twelve-month price target of $120. We expect the stock to trade lower once consensus estimates are reset and aligned with an increasingly negative commercial aircraft production outlook, a sharp pullback in aftermarket sales, and a 1Q18 earnings shortfall. We came away from a bottoms-up look at the company, which included proprietary aerospace supplier survey-work and follow-up analysis, with an incrementally bearish and view of the company and industry. Continue reading

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9:00 AM
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