Global Air Travel And Decarbonization Will Drive Composite Demand

Key Takeaways

• Accelerating demand for advanced composites in commercial and defense aerospace positions Hexcel for sustained revenue growth, margin expansion, and reduced earnings volatility.
  
• Strong supplier relationships, existing capacity, and operational efficiencies enable further gains in profitability as aircraft production volumes recover and grow.
  
• Dependence on key aerospace customers, external market pressures, and rising competition threaten Hexcel’s revenue stability, margins, and future growth prospects.

Catalysts

Develops, manufactures, and markets carbon fibers, structural reinforcements, honeycomb structures, resins, and composite materials and parts for use in commercial aerospace, space and defense, and industrial applications.

• Hexcel is positioned to benefit from a significant multiyear ramp-up in commercial aircraft production, particularly with the Airbus A350 program expected to more than double output by 2028 as travel demand and OEM backlogs drive higher build rates, offering roughly $0.5 billion in incremental annual sales and supporting accelerating revenue growth once supply chain normalization occurs.
  
• Rising global emphasis on fuel efficiency and decarbonization is pushing airlines and aircraft OEMs to increase the composite content in new-generation platforms, which plays directly to Hexcel’s strengths as a leader in lightweight advanced composites, likely enabling both sustainable top-line expansion and premium pricing that supports higher net margins over time.
  
• Increased geopolitical tensions are driving defense spending and procurement of next-generation aircraft and space systems in the U.S. and Europe, where Hexcel’s unique U.S.-owned carbon fiber production and vertically integrated operations give it an advantaged position to secure long-term contracts and diversify its revenue base, reducing cyclicality and stabilizing future earnings.
  
• Hexcel benefits from exclusive, life-of-program, sole-source supplier positions and long-term agreements with key OEMs such as Boeing and Airbus, which ensure substantial revenue visibility and resilience, while new capacity (including a soon-to-be-completed fiber line) is already in place, supporting margin expansion as production volumes recover.
  
• The company’s prior heavy capital investments mean that incremental growth will increasingly drop through to operating income as existing plant infrastructure absorbs higher volumes without major new capex, while ongoing operational excellence, cost control, and productivity initiatives are set to further accelerate margin expansion and cash generation as aircraft production ramps.

Hexcel Future Earnings and Revenue Growth

Assumptions

• This narrative explores a more optimistic perspective on Hexcel compared to the consensus, based on a Fair Value that aligns with the bullish cohort of analysts.
• The bullish analysts are assuming Hexcel's revenue will grow by 12.9% annually over the next 3 years.
• The bullish analysts assume that profit margins will increase from 6.6% today to 10.9% in 3 years time.
• The bullish analysts expect earnings to reach $297.6 million (and earnings per share of $3.87) by about July 2028, up from $124.5 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the price target of the more bullish analyst cohort, the company would need to trade at a PE ratio of 22.5x on those 2028 earnings, down from 39.3x today. This future PE is lower than the current PE for the GB Aerospace & Defense industry at 35.1x.
• Analysts expect the number of shares outstanding to decline by 1.64% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.4%, as per the Simply Wall St company report.

Hexcel Future Earnings Per Share Growth

Risks

• Hexcel’s heavy reliance on Airbus and Boeing makes it especially vulnerable to reductions in aircraft production rates or changes in order patterns, as seen in the significant hit to 2025 revenue guidance following cuts to the A350 and A320 programs, which increases the risk of ongoing revenue volatility.
  
• The company faces structural headwinds from global decarbonization policies and potential increases in air travel taxation, which can suppress long-term demand growth for new aircraft and thus weaken demand for Hexcel’s composites, impacting future earnings growth.
  
• Hexcel’s gross margin deterioration from 25 percent last year to 22.4 percent this quarter, largely due to lower operating leverage from weak sales and additional production expenses, indicates that ongoing margin pressure is likely if commercial OEM build rates do not recover as forecasted, directly affecting net margins.
  
• The risk of intensifying competition from alternative materials such as advanced metal alloys or recycled materials, as well as new entrants with aggressive pricing, threatens Hexcel’s market share and could lead to further margin compression and profit reduction over the long term.
  
• Persistent geopolitical and trade risks, such as evolving tariffs and protectionist policies, introduce uncertainty for Hexcel’s supply chain and customer order stability, with management acknowledging that even a modest $3 million to $4 million per quarter direct tariff impact could be compounded by wider indirect disruptions, risking both operating income and cash flow.

Valuation

• The assumed bullish price target for Hexcel is $71.0, which is the highest price target estimate amongst analysts. This valuation is based on what can be assumed as the expectations of Hexcel's future earnings growth, profit margins and other risk factors from analysts on the bullish end of the spectrum.
• However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $71.0, and the most bearish reporting a price target of just $52.0.
• In order for you to agree with the bullish analysts, you'd need to believe that by 2028, revenues will be $2.7 billion, earnings will come to $297.6 million, and it would be trading on a PE ratio of 22.5x, assuming you use a discount rate of 7.4%.
• Given the current share price of $60.8, the bullish analyst price target of $71.0 is 14.4% higher.
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.