Recent Posts

Aero Suppliers: The Global Supply Chain Could Be Facing More Bad 787 News

Indications from our latest aerospace channel checks suggests additional downside risk for global suppliers levered to the B787 aircraft program. Industry contacts now report growing demand headwinds associated with extended Dreamliner assembly lines halts and have started to reset 1H22 top-line expectations due to a slower-than-expected production recovery. This morning, we lowered estimates for the main companies in our coverage group to align with more conservative B787 build rate assumptions for CY22.formal issuance of strong LEAP jet engine production guidance. Both items should be considered bullish data points for the specialty materials and upstream aero supply peer groups, and the main drivers behind accelerated top-line growth and strong earnings contribution over the next 2-3 years. Continue reading

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9:57 AM

Aerospace: Updating Our Macro Assumptions Ahead Of New Industry Catalysts

After taking a closer look at aerospace market drivers, listening to the commentary provided by OEMs and Tier-1 suppliers, and collecting early market intel from proprietary survey-work, we remain comfortable with the bullish outlook applied the coverage group. We anticipate the realization of accelerated aero-related sales growth in CY22 for companies levered to aluminum, composite materials, specialty materials, and forging services driven by unit volume strength, better pricing/mix, and distribution channel refill. In today’ s market update, We lowered the CY22 earnings outlook for Hexcel (HXL) to account lost 787 revenues in 1H22. Continue reading

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5:39 AM

Hexcel Corporation (HX): Downgrading Shares To Outperform On Reduced Near-Term Earnings Visibility

Hexcel Corporation is one of the companies positioned within the aerospace supply channel with elevated exposure to the market headwinds we highlighted in prior notes, including a destabilized 787 aircraft program (following a pullback in monthly build rates) and volume disruptions associated with extended military production bottlenecks. This morning, we lowered estimates on HXL to fully discount a delayed sales recovery risk or weaker-than-expected shipments to key customers like Boeing and Lockheed Martin. With respect to the limited near-term earnings visibility, we also downgraded the shares to OUTPERFORM (versus Strong Buy). Continue reading

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3:44 AM

Aerospace: Upgrading Upstream Suppliers On Stronger Aero Sales Outlook And Potential Bottleneck Benefits

We are making a rotational call within the aerospace coverage group, now favoring upstream suppliers that appear to be positioned to benefit from a changing commercial aircraft production environment. The investor narrative may shift to the premium forgers and/or specialty materials providers earlier-than-expected as the supply chain readies for a sharp inflection in demand for 737MAX or A320neo applications, looking beyond negative near-term earnings expectations. As such, we are changing ratings on a few companies that fit into that description. Today, we are formally upgrading Hexcel Corporation (HXL) and Haynes International (HAYN) to Strong Buy investment ratings and moving Allegheny Technologies (ATI) over to Outperform. We had previously rated all three Hold. Continue reading

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8:28 AM

Hexcel Corporation (HXL): One Step Closer To Stability, Assuming The Aircraft Production Rates Hold

We came away from the latest Hexcel Corporation (HXL) quarterly earnings update and investor call somewhat intrigued by the latest market outlook, continuation of the cost reduction strategy, and uptick in confidence communicated by the management team. We would consider a rating change should the shares pullback and market intelligence confirm a reversal in upstream demand. Our hesitancy relates to the unfavorable macro environment and expected change in wide-body aircraft schedules (lower for longer). Continue reading

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12:45 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

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

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
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