This Aerospace Stock Is About to Take Off

It has been a challenging few years for advanced lightweight composites company Hexcel (NYSE: HXL). The company's primary end market is commercial aerospace, and the combination of lockdowns affecting the travel market, the ensuing supply chain crisis, and the slower-than-expected recovery in aircraft production at Boeing (NYSE: BA) and Airbus (OTC: EADSY) collectively hurt Hexcel's growth. However, there are real signs of a strong recovery in place now, and Hexcel stock will be a major beneficiary.

The case for buying Hexcel

Hexcel is an ideal stock to buy to play the recovery in aircraft production, because unlike most other aerospace-focused companies, it doesn't have significant aftermarket revenue. Instead, its growth depends on a combination of increased aircraft production and the increasing penetration of composites in aircraft.

Both earnings drivers have excellent prospects. First, Boeing and Airbus continue to have multiyear backlogs in place, and they're aggressively ramping aircraft production to catch up with the more than 15,000 aircraft they need to build. Meanwhile, engine and component suppliers GE Aerospace and RTX both recently hiked their guidance on the back of improved parts availability. The supply chain crisis is easing.

Second, lightweight composites will have a larger share of content on commercial aircraft, as has been the case with each successive generation of aircraft. For example, the current Boeing 777 wide-body features a 10% composite penetration, whereas the forthcoming 777X is expected to have a 30% composite penetration.

It's a trend that will benefit Hexcel through a combination of increased aircraft production and higher shipset value on newer aircraft.

Image source: Getty Images.

Hexcel's recovery is just starting

Management is so confident in aircraft production rates and Hexcel's position that it recently authorized $600 million in share buybacks as it returns value to shareholders. Meanwhile, Wall Street expects double-digit revenue growth and earnings before interest, taxes, depreciation, and amortization (EBITDA) growth of 20% or more over the next few years.

As such, Hexcel is in the early innings of a multiyear recovery in concert with production ramps at Boeing and Airbus.

Lee Samaha has no position in any of the stocks mentioned. The Motley Fool recommends GE Aerospace, Hexcel, and RTX. The Motley Fool has a disclosure policy.