Hexcel Corporation has dealt with a lot of pain over the past year or so, driven by the COVID-19 pandemic.
The company ultimately should fare well, but it could take time for a full recovery to be staged.
Upon a full recovery, however, it could make for an attractive prospect from a pricing perspective.
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Jetlinerimages/E+ via Getty Images In the modern era, advanced composite materials are used to create many of the physical technologies that we utilize today. These range from aircraft to spacecraft to other vehicles and so much more. And one of the companies dedicated to creating these composites is Hexcel Corporation ( HXL ). Despite experiencing some pain as a result of the COVID-19 pandemic, and with that pain continuing into the current fiscal year, the company has generally performed quite well in the past. Ultimately, it should make a recovery down the road. But that doesn’t mean that it makes for a great prospect to buy into at this time. For those who have a much longer time horizon for the firm, it may make sense to buy in now and wait. But for impatient investors, there are probably better prospects on the market to be had. A unique enterprise
According to the management team at Hexcel, the company is responsible for the production of advanced composites. They develop, manufacture, and market lightweight, high performance structural materials. These include carbon fibers, prepregs, and other fiber reinforced matrix materials. They also produce adhesives, radio frequency and electromagnetic interference and microwave absorbing materials, and so much more. Their products are used in the production of various commercial and military aircraft and space launch vehicles and satellites. It is also used in wind turbines, automotive, and recreational products, as well as other industrial devices. At present, the largest segment the company operates is called its Composite Materials segment. Through this, the company produces many of the aforementioned technologies. A more detailed list can be seen in the image above. In addition to this, the company has another segment called Engineered Products. Through this, it produces composite structures, engineered honeycomb components, and RF interference control technologies used for military and aerospace applications. While the Composite Materials segment accounts for about 80% of the company’s overall sales, Engineered Products is responsible for the other 20%. In terms of market focus, an estimated 55% of the company’s revenue comes from the commercial aerospace market. In this market, its composites find their way into the wings, fuselage, and other structures that comprise various aircraft. 30% of the company’s sales fall under the space and defense segment. And the remaining 15% is attributable to the industrial space, such as wind energy and automotive uses. In the years leading up to the COVID-19 pandemic, Hexcel achieved attractive revenue growth. Between 2016 and 2019, for instance, revenue grew from $2 billion to $2.36 billion. But then, in 2020, sales declined to just $1.50 billion. Revenue would have been higher, but the company ultimately backed out of its plan to merge with Woodward ( WWD ) only a few months after they announced their initial plan to merge. This decision was driven by uncertainty caused by the COVID-19 pandemic. Not only did sales fall during this period, they continued to fall since then. Revenue in the first nine months of the company’s 2021 fiscal year totaled $964.4 million. That represents a decline of 20.1% compared to the $964.4 million generated the same time one year earlier. Fortunately for investors, this pain looks like it could be stopping. Revenue in the third quarter alone came in at $333.8 million. This was 16.3% higher than the $286.9 million achieved in the same quarter last year. *Created by Author
On the bottom line, we have seen a similar trend. After seeing that income rise from $249.8 million in 2016 to $306.6 million in 2019, it eventually plummeted to $31.7 million in 2020. Operating cash flow was a bit more volatile, but it generally rose, climbing from $401.4 million to $491.1 million. But then, in 2020, it declined to $264.3 million. Meanwhile, EBITDA grew from $471.2 million to $583.6 million before dropping to $252.5 million in 2020. As could be expected, with sales falling so far this year, profits have followed suit. In the first nine months of 2020, the company generated profits of […]