Deutsche Bank has adjusted its outlook on Hexcel Corp . (NYSE: NYSE:HXL), a key player in the aerospace industry, by revising its price target downward to $62 from the previous $65 while maintaining a Hold rating on the stock.
The revision reflects a recalibration of earnings estimates for the years 2024 through 2026, taking into account revised production rate assumptions for industry giants Boeing (NYSE:BA) and Airbus.
The bank's analyst cited the rationale behind the adjustment, noting a decrease in earnings forecasts for Hexcel Corp. The new projections are set at $1.98, $2.57, and $3.26 for the respective years from 2024 to 2026, down from the earlier estimates of $2.11, $2.69, and $3.42.
The change is primarily attributed to lower production rate assumptions for both Boeing and Airbus, which are essential contributors to Hexcel's business.
Hexcel Corp.'s valuation, according to Deutsche Bank, is based on a 19 times price-to-earnings (P/E) multiple applied to the company's anticipated earnings per share (EPS) of $3.26 in calendar year 2026. The reduced price target of $62 is a direct outcome of the lowered earnings estimates.
The analyst also outlined potential risks and opportunities that could impact Hexcel's performance. On the downside, risks include the possibility of diminishing growth in the Airbus A350 program, slower growth in air traffic, challenges within the supply chain, and potential reductions in the U.S. Department of Defense (DoD) budgets.
Conversely, upside risks might arise from better-than-expected cost management, quicker original equipment (OE) rate ramps, increased DoD budgets, and a stronger order book for the A350 aircraft.
In other recent news, L3Harris Technologies (NYSE:LHX) has experienced a downgrade from Outperform to Sector Perform by RBC Capital, which also lowered the company's price target to $240 from $250.
The adjustment follows the second quarter of 2024 earnings cycle in the Aerospace & Defense sector, which showed a modest top-line growth of approximately 10% organically for defense stocks.
Meanwhile, Hexcel Corporation reported a 10% year-over-year increase in second-quarter sales, totaling $500 million. However, due to supply chain challenges and a reduction in Airbus deliveries, Hexcel revised its 2024 guidance, now anticipating sales to range between $1.9 billion and $1.98 billion, with adjusted diluted earnings per share of $2.02 to $2.18.
Jefferies has maintained a 'Hold' rating on Hexcel stock, highlighting the company's strong long-term contracts, such as the notable agreement with Airbus extending through 2030. Despite a slight decline in the defense segment and a projected double-digit decline in the Industrial segment for the year, Hexcel's automotive market remains robust.
InvestingPro Insights
To complement Deutsche Bank's analysis of Hexcel Corp. (NYSE:HXL), recent data from InvestingPro offers additional context for investors. As of the last twelve months ending Q2 2024, Hexcel reported revenue of $1.85 billion, with a notable revenue growth of 8.42%. This growth aligns with the company's position in the aerospace industry, which is experiencing recovery and increased demand.
InvestingPro Tips highlight that Hexcel has been profitable over the last twelve months, with analysts predicting continued profitability this year. This positive outlook supports Deutsche Bank's earnings projections, albeit at slightly lower levels than previously estimated.
The company's P/E ratio stands at 48.13, which reflects the high earnings multiple mentioned in the Deutsche Bank analysis. This valuation metric, combined with the InvestingPro Tip noting that Hexcel is trading near its 52-week low, suggests that investors are weighing the company's growth prospects against current market conditions and industry challenges.
For investors seeking a more comprehensive analysis, InvestingPro offers 7 additional tips for Hexcel, providing a deeper understanding of the company's financial health and market position.
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