Morgan Stanley cuts Hexcel to Underweight, says growth potential capped By Investing.com
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On Thursday, Morgan Stanley downgraded shares of Hexcel Corp . (NYSE:) from Equalweight to Underweight and reduced the price target to $66 from $70. The decision followed the company’s Investor Day held in New York City on Tuesday, February 20, 2024, which showcased Hexcel’s positive multi-year growth outlook across its Aerospace, Defense, and Industrial markets. Despite this, the analyst expressed concerns that the growth potential is already reflected in the current consensus.
The company provided a mid-term business outlook for 2024-2026, detailing expectations for Sales, EBITDA, Adjusted EPS, and FCF. However, Morgan Stanley’s analysis suggests a more cautious approach, with their operating estimates remaining below the consensus. This caution stems from anticipated delays in the ramp-up to new aircraft production due to ongoing supply chain issues, which are supported by proprietary surveys conducted by Morgan Stanley.
The analyst also noted Hexcel’s stock is trading at a premium compared to historical aerospace upcycle multiples based on P/E ratios. Given the premium valuation and potential risks associated with supply chain challenges, the firm sees the risk-reward balance for Hexcel as being skewed to the downside. This led to the downgrade and the setting of a new price target.
Morgan Stanley highlighted that while there are better risk-adjusted opportunities within their coverage, such as TDG, HWM (BMV:), and FTAI, Hexcel’s management’s high-end outlook could be considered the Bull case scenario with a potential valuation of $84. Conversely, the Bear case scenario sees a valuation of $50, factoring in the risks of slower-than-expected aircraft production rate increases and possible margin compression due to lower volumes.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
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© Reuters.
On Thursday, Morgan Stanley downgraded shares of Hexcel Corp . (NYSE:) from Equalweight to Underweight and reduced the price target to $66 from $70. The decision followed the company’s Investor Day held in New York City on Tuesday, February 20, 2024, which showcased Hexcel’s positive multi-year growth outlook across its Aerospace, Defense, and Industrial markets. Despite this, the analyst expressed concerns that the growth potential is already reflected in the current consensus.
The company provided a mid-term business outlook for 2024-2026, detailing expectations for Sales, EBITDA, Adjusted EPS, and FCF. However, Morgan Stanley’s analysis suggests a more cautious approach, with their operating estimates remaining below the consensus. This caution stems from anticipated delays in the ramp-up to new aircraft production due to ongoing supply chain issues, which are supported by proprietary surveys conducted by Morgan Stanley.
The analyst also noted Hexcel’s stock is trading at a premium compared to historical aerospace upcycle multiples based on P/E ratios. Given the premium valuation and potential risks associated with supply chain challenges, the firm sees the risk-reward balance for Hexcel as being skewed to the downside. This led to the downgrade and the setting of a new price target.
Morgan Stanley highlighted that while there are better risk-adjusted opportunities within their coverage, such as TDG, HWM (BMV:), and FTAI, Hexcel’s management’s high-end outlook could be considered the Bull case scenario with a potential valuation of $84. Conversely, the Bear case scenario sees a valuation of $50, factoring in the risks of slower-than-expected aircraft production rate increases and possible margin compression due to lower volumes.
This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.
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