Hexcel (HXL)

Aerospace and defense company Hexcel (NYSE:HXL) beat Wall Street’s revenue expectations in Q3 CY2025, but sales were flat year on year at $456.2 million. On the other hand, the company’s full-year revenue guidance of $1.88 billion at the midpoint came in 1.4% below analysts’ estimates. Its non-GAAP profit of $0.37 per share was in line with analysts’ consensus estimates.

Company Overview

Founded shortly after World War II by a group of engineers from UC Berkley, Hexcel (NYSE:HXL) manufactures lightweight composite materials primarily for the aerospace and defense sectors.

Aerospace companies often possess technical expertise and have made significant capital investments to produce complex products. It is an industry where innovation is important, and lately, emissions and automation are in focus, so companies that boast advances in these areas can take market share. On the other hand, demand for aerospace products can ebb and flow with economic cycles and geopolitical tensions, which can be particularly painful for companies with high fixed costs.

Hexcel’s peers and competitors include Spirit Aerosystems (NYSE:SPR) and TPI Composites (NASDAQ:TPIC).

A company’s long-term performance is an indicator of its overall quality. Any business can experience short-term success, but top-performing ones enjoy sustained growth for years. Over the last five years, Hexcel grew its sales at a weak 1.2% compounded annual growth rate. This fell short of our benchmarks and is a tough starting point for our analysis.

We at StockStory place the most emphasis on long-term growth, but within industrials, a half-decade historical view may miss cycles, industry trends, or a company capitalizing on catalysts such as a new contract win or a successful product line. Hexcel’s annualized revenue growth of 3.2% over the last two years is above its five-year trend, but we were still disappointed by the results.

We can better understand the company’s revenue dynamics by analyzing its most important segments, Commercial aerospace and Space & defense, which are 60.1% and 39.9% of revenue. Over the last two years, Hexcel’s Commercial aerospace revenue (customers like Airbus, Boeing) averaged 3.8% year-on-year growth while its Space & defense revenue (government customers) averaged 14.8% growth.

This quarter, Hexcel’s $456.2 million of revenue was flat year on year but beat Wall Street’s estimates by 3%.

Looking ahead, sell-side analysts expect revenue to grow 9.3% over the next 12 months, an improvement versus the last two years. This projection is healthy and suggests its newer products and services will catalyze better top-line performance.

Hexcel has done a decent job managing its cost base over the last five years. The company has produced an average operating margin of 8.7%, higher than the broader industrials sector.

Looking at the trend in its profitability, Hexcel’s operating margin rose by 5.7 percentage points over the last five years, as its sales growth gave it operating leverage.

This quarter, Hexcel generated an operating margin profit margin of 7.9%, down 3.6 percentage points year on year. This contraction shows it was less efficient because its expenses increased relative to its revenue.

We track the long-term change in earnings per share (EPS) for the same reason as long-term revenue growth. Compared to revenue, however, EPS highlights whether a company’s growth is profitable.

Hexcel’s EPS grew at an unimpressive 6.4% compounded annual growth rate over the last five years. On the bright side, this performance was better than its 1.2% annualized revenue growth and tells us the company became more profitable on a per-share basis as it expanded.

Diving into the nuances of Hexcel’s earnings can give us a better understanding of its performance. As we mentioned earlier, Hexcel’s operating margin declined this quarter but expanded by 5.7 percentage points over the last five years. Its share count also shrank by 4.4%, and these factors together are positive signs for shareholders because improving profitability and share buybacks turbocharge EPS growth relative to revenue growth.

Like with revenue, we analyze EPS over a more recent period because it can provide insight into an emerging theme or development for the business.

For Hexcel, EPS didn’t budge over the last two years, a regression from its five-year trend. We hope it can revert to earnings growth in the coming years.

In Q3, Hexcel reported adjusted EPS of $0.37, down from $0.47 in the same quarter last year. This print missed analysts’ estimates. Over the next 12 months, Wall Street expects Hexcel’s full-year EPS of $1.76 to grow 34.6%.

Free cash flow isn't a prominently featured metric in company financials and earnings releases, but we think it's telling because it accounts for all operating and capital expenses, making it tough to manipulate. Cash is king.

Hexcel has shown impressive cash profitability, enabling it to ride out cyclical downturns more easily while maintaining its investments in new and existing offerings. The company’s free cash flow margin averaged 8.8% over the last five years, better than the broader industrials sector.

Taking a step back, we can see that Hexcel’s margin dropped by 1.9 percentage points during that time. If its declines continue, it could signal increasing investment needs and capital intensity.

Hexcel’s free cash flow clocked in at $96.5 million in Q3, equivalent to a 21.2% margin. This result was good as its margin was 5.1 percentage points higher than in the same quarter last year, but we wouldn’t read too much into the short term because investment needs can be seasonal, causing temporary swings. Long-term trends trump fluctuations.

EPS and free cash flow tell us whether a company was profitable while growing its revenue. But was it capital-efficient? A company’s ROIC explains this by showing how much operating profit it makes compared to the money it has raised (debt and equity).

Hexcel historically did a mediocre job investing in profitable growth initiatives. Its five-year average ROIC was 5.8%, somewhat low compared to the best industrials companies that consistently pump out 20%+.

We like to invest in businesses with high returns, but the trend in a company’s ROIC is what often surprises the market and moves the stock price. On average, Hexcel’s ROIC increased by 4.9 percentage points annually over the last few years. This is a good sign, and we hope the company can continue improving.

Hexcel reported $90.5 million of cash and $757.9 million of debt on its balance sheet in the most recent quarter. As investors in high-quality companies, we primarily focus on two things: 1) that a company’s debt level isn’t too high and 2) that its interest payments are not excessively burdening the business.

With $316.1 million of EBITDA over the last 12 months, we view Hexcel’s 2.1× net-debt-to-EBITDA ratio as safe. We also see its $15.8 million of annual interest expenses as appropriate. The company’s profits give it plenty of breathing room, allowing it to continue investing in growth initiatives.

We were glad Hexcel's revenue outperformed Wall Street’s estimates. On the other hand, its full-year revenue guidance was lowered and full-year EPS guidance missed. Overall, this quarter was mixed, with the company's financial outlook as a key negative. The stock traded up 1.9% to $64.99 immediately following the results.

Updated: December 4, 2025 at 10:21 PM EST

When considering an investment in Hexcel, investors should account for its valuation and business qualities as well as what’s happened in the latest quarter.

We cheer for all companies making their customers lives easier, but in the case of Hexcel, we’ll be cheering from the sidelines. To begin with, its revenue growth was weak over the last five years. And while its expanding operating margin shows the business has become more efficient, the downside is its relatively low ROIC suggests management has struggled to find compelling investment opportunities. On top of that, its cash profitability fell over the last five years.

Hexcel’s P/E ratio based on the next 12 months is 34.8x. This multiple tells us a lot of good news is priced in - we think there are better opportunities elsewhere.

Wall Street analysts have a consensus one-year price target of $75.79 on the company (compared to the current share price of $78.75), implying they don’t see much short-term potential in Hexcel.