What happened
Shares in advanced-materials company Hexcel(NYSE: HXL) were up by 12.9% in the week through Thursday. There are no prizes for guessing why: Most of the lifting was done by the release of its fourth-quarter earnings on Thursday.
In a nutshell, Hexcel beat estimates for the quarter, gave full-year guidance generally ahead of the market consensus, and said that it would restart construction of a new carbon-fiber line in an Alabama factory "which should be aerospace qualified in 2025 and will provide needed capacity based on forecasted growth." Construction was paused in 2020.
So what
Hexcel makes advanced lightweight composite materials. Its composites offer weight and strength advantages over traditional materials, and are used where those qualities are at a premium.
It sells into the industrial sector (for use in wind turbines, for example) and space & defense markets. But its key end market is commercial aerospace. As such, it's a play on the aircraft production ramp-ups at Boeing and Airbus, as well as larger business jets manufactured by Dassault Aviation and General Dynamics' (NYSE: GD) Gulfstream, for example.
In addition, Hexcel has a growth opportunity from selling more content on newer generations of planes, a trend in the aerospace industry.
Management guided toward sales growth in the range of 9.3% to 15.6% in 2023, the midpoint of which is higher than the analyst consensus of 11.3%. And free-cash-flow guidance of $140 million in 2023 is good considering management plans to ramp up capital expenditures to $90 million from $69.8 million in 2022 (partly to support the new construction line).
Now what
Investors will be keenly watching the production schedules of Boeing and Airbus because Hexcel is gearing up for growth. But beyond the recovery in aerospace over the next few years, the long-term future looks bright for an exciting growth stock.
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Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends Hexcel. The Motley Fool has a disclosure policy.
