Hexcel BUY Target $50

HXL : NYSE : US$43.50
Target: US$50.00

Hexcel is a leading supplier of advanced composites for the commercial aerospace, defense, space and industrial
markets. Specific product offerings include carbon fibers, specialty reinforcements, prepregs, fiber-reinforced
matrix materials, honeycomb, adhesives, and composite structures.
All amounts in US$ unless otherwise noted.

Transportation and Industrials — Airlines and Aerospace
Investment recommendation:

Hexcel (HXL) will release its 2014
guidance at its investor conference on 12/16. We believe the initial EPS guidance will call for 10-14% EPS growth, or a range of $2.00 – $2.10.
Over the past three years, HXL has outperformed its initial full year EPS guidance by 17% on average. We believe HXL should continue to benefit from the secular and cyclical growth for composites in commercial aerospace, with the A350 providing significant late-cycle acceleration.
Wind sales should improve off the H1/13 trough, and capital deployment opportunities could provide additional catalysts. Moreover, the 777X represents longer term upside and could be a potential catalyst. We are raising our price target from $46 to $50.
Investment highlights
 While we do not expect the initial 2014 guidance to be a significant catalyst for the stock, we expect HXL to be a top performing stock in 2014. We believe the guidance will be in-line with expectations, and we are maintaining our 2014 and 2015 EPS estimates of $2.14 and $2.42.
 In terms of markets, we model in ~13% growth for commercial aerospace in both 2014 and 2015, driven largely by the 787 and the A350. Other catalysts include cash deployment (share repurchases, primarily), better than expected execution, and the 777X.

Our $50 price target is based on the average of a 22.5x EPS multiple and a 14.0x EBITDA multiple applied to our 2014 estimates. We believe HXL will continue to justify a premium to the sector based on the secular composite growth, better-than-expected execution, and cash deployment, and the improving outlook for wind sales into 2014.


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