I thought the panic around commercial aerospace left Hexcel (HXL) shares at an interesting valuation for long-term investors willing to accept elevated risk on an aerospace components play back in April. What I didn’t expect was the sudden shift in sentiment from “they’re doomed!” to “they’ll be fine!” in such a short period of time. While former merger partner Woodward (WWD) did even better (as did Howmet (HWM), not all components suppliers have enjoyed the run, including Spirit AeroSystems (SPR) and metal suppliers like Allegheny (ATI) and Carpenter (CRS).
I do still believe that air travel is going to recover over time, and with airlines using the downturn in demand and flight hours as an opportunity to retire older aircraft, the demand for new aircraft is still going to be there, and Hexcel is going to have its opportunities to benefit from growth at OEMs like Airbus (OTCPK:EADSY) and Boeing (BA). I’m still expecting a five-year path back, though, and today’s share price seems to capture that pretty fairly. At this point, I think Hexcel needs to see a faster return to normal to really merit a substantially higher share price.
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