If you haven't heard of industrial materials specialist Hexcel Corporation (HXL 0.13%) before, this aerospace stock is one to pay attention to. The company reported its third-quarter earnings on Oct. 18. While its results weren't positive across the board, the third quarter showed marked improvement from the doldrums of the pandemic. In this segment of Backstage Pass, recorded on Oct. 19, Fool contributor Lou Whiteman breaks down the core of Hexcel's business and exactly what investors need to know about this stock.
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Brian Withers: We are doing "Beat & Raise," good to see you Toby, and we have earnings today. So excited. It's been a drought for earnings, and we're going to bring six companies to you today. We have a host of people to bring them to you, and we're going to start first with Hexcel Corporation. Lou, I have never heard of this company before it made the list for earnings today.
Lou Whiteman: There you go.
Withers: I'm assuming you're going to tell us a little bit about what they do.
Whiteman: Yeah. This is one of the newer recommendations in our universe. I think it is only recommended by one service and it's a pretty recent only in the last month or so this has joined Fooldom. Let me try and share here and we'll talk a little about them. That work?
Withers: Yeah, looks great.
Whiteman: As you see by that nice, pretty plane, Hexcel is in the market of lightweight composite materials; carbon fiber. I'll give you a little bit of the elevator pitch since this is new, about transportation accounts for about 25% of global carbon emissions. Airplanes, trucks, railroads, these are big polluters and we need to get this sorted.
Most of these industries can't just go electric; batteries are heavy, they don't have the energy density that's needed to get a plane airborne and keep it in the air. The answer at least in part, is going to be to make the planes, make the trucks, make the trains lighter, and that's where Hexcel comes in.
These carbon fiber materials, it's lighter than metal for better fuel efficiency, it's very easy to mold once you know what you're doing. There is a moat here in terms of it could be very hard to set up one of these facilities. Once you know what you're doing, you can mold it into almost any shape which helps aerodynamics.
Again, this is a company you could say right now they are 51% aerospace; they do space, but they are also really, and I think part of the recommendation, what brought them to the Fool's attention is this other, composite wind blades, automotive. Right now it's an airplane story with the plastic plane, the Boeing-787 is the one that's up there.
I think 787 is more than 50% carbon composite materials. In the future, electric vehicles, Hexcel is really trying to get into those supply chains too because it's the same thing. It's tougher than metal, it doesn't dent, it could be safer in a lot of situations, and a lot lighter.
If you think about it, it is to the extent that they can get it to work and it is expensive, but it is a big part of the future. The Dreamliner, more than 50% carbon fiber, uses about 20% less fuel than its competitor that is the same size on metal, so that's the idea of what fiber can do for you.
They had earnings last night, and the other thing to know about this company is that it has been caught up in the pandemic because we simply haven't been selling as many airplanes.