Boring Portfolio

Looking at Hexcel
Friday, May 29, 1998
by Greg Markus (TMFBoring@aol.com)

SYDNEY, Australia (May 29, 1998) -- Five of eight holdings in the Boring Portfolio lost ground today as U.S. stocks ended this holiday-shortened week on a down note. The Nasdaq and S&P 500 closed at session lows, off 0.62% and 0.88%, respectively. Trading activity was very light. The Borefolio slid 0.94%.

This was also the final trading session of May, a month that saw the S&P 500 drop 1.88% and the Borefolio 1.91%. The Nasdaq fared far worse, tumbling 4.79% and giving new meaning to its common journalistic descriptor "technology-laden."

As has been the case since the Memorial Day weekend, there was no news of significance -- or even or insignificance, really -- that I could locate on our Boring stocks. The overall declines in stock prices during the past month have encouraged us in our search for a remaining purchase or two that would fill out our portfolio. Valuation matters to us, and the share prices of a number of potentially worthwhile investments have come back to where they're looking quite attractive.

One of the companies that I'm currently researching is Hexcel Corp. (NYSE: HXL). The Stamford, Conn.-based company is a leading international developer and manufacturer of carbon fibers, reinforcement fabrics, and lightweight, high-performance composite materials and engineered products for use in commercial aerospace, space and defense, recreation, and general industry.

Controversial Zoltek (Nasdaq: ZOLT) may gather more attention in online chat rooms, but boring Hexcel, which is in its 50th year of business, may be the more worthwhile long-term investment. In just two years since the bottom of the aerospace cycle, the company has achieved a 168% increase in sales and increased its gross margin from 19.2% to 23.8%. The company expects sales to exceed $1 billion in 1998 for the first time in its history.

The dramatic turnaround was a result of three major factors. First, Hexcel led the consolidation of the advanced structural materials industry, through the acquisitions of the Ciba and Hercules composite materials businesses in 1996. Second, despite hiccups along the way, there has been a significant increase in commercial aerospace build rates. Third, Hexcel successfully embarked on a business consolidation program to eliminate excess capacity and to integrate the acquired businesses.

Hexcel is fairly highly leveraged as a result of its recent major acquisition activity. On the other hand, earnings are projected to grow nicely at least into the new millennium. Analysts expect Hexcel to make $1.73 per share this year, which would constitute a 24% gain over 1997's $1.39. As for 1999, the current consensus forecast is for EPS to rise to $2.08.

At a current price of around $27 (up 5% in today's slumping market, by the way), HXL thus trades at less than 16-times projected 1998 EPS and barely 13-times the 1999 forecast.

Sporting a 10.6% return on assets, a 364% return on equity, rising margins, and a leading position in the improving aerospace industry, Hexcel is a company we'll be looking at closely.

In fact, I suspect I'll be literally looking directly at Hexcel -- or at least some of its products -- when I head out to Sydney airport in a few hours to head back home.

I hope to catch you here next week.

FoolWatch -- It's what's going on at the Fool today.


TODAY'S NUMBERS
Stock  Change    Bid 
 ANDW  -  1/8   21.94 
 CGO   +  3/8   35.38 
 BGP   -  5/8   31.00 
 CSL   -  3/4   48.38 
 CSCO  -1 15/16 75.50 
 FCH   -  3/16  34.44 
 PNR   +  15/16 43.88 
 TBY     ---    9.69 
 
                   Day   Month    Year  History 
         BORING   -0.94%  -1.91%   1.21%  27.35% 
         S&P:     -0.62%  -1.88%  12.41%  75.48% 
         NASDAQ:  -0.88%  -4.79%  13.28%  70.89% 
  
     Rec'd   #  Security     In At       Now    Change 
   2/28/96  400 Borders Gr    11.26     31.00   175.40% 
   6/26/96  150 Cisco Syst    35.93     75.50   110.11% 
   8/13/96  200 Carlisle C    26.32     48.38    83.76% 
    3/5/97  150 Atlas Air     23.06     35.38    53.42% 
   4/14/98  100 Pentair       43.74     43.88     0.30% 
   5/20/98  400 TCBY Enter    10.05      9.69    -3.56% 
   11/6/97  200 FelCor Sui    37.59     34.44    -8.39% 
   1/21/98  200 Andrew Cor    26.09     21.94   -15.92% 
  
     Rec'd   #  Security     In At     Value    Change 
   2/28/96  400 Borders Gr  4502.49  12400.00  $7897.51 
   6/26/96  150 Cisco Syst  5389.99  11325.00  $5935.01 
   8/13/96  200 Carlisle C  5264.99   9675.00  $4410.01 
    3/5/97  150 Atlas Air   3458.74   5306.25  $1847.51 
   4/14/98  100 Pentair     4374.25   4387.50    $13.25 
   5/20/98  400 TCBY Enter  4018.00   3875.00  -$143.00 
   11/6/97  200 FelCor Sui  7518.00   6887.50  -$630.50 
   1/21/98  200 Andrew Cor  5218.00   4387.50  -$830.50 
  
                              CASH   $5429.76 
                             TOTAL  $63673.51