There's nothing unique about these aerospace-focused companies, but there is something special about their investment propositions. Both stocks require investors to think differently about why they invest in the company. So let's examine why advanced composites materials company Hexcel (HXL 2.13%) and aerospace giant Boeing (BA -0.73%) are such unusual investments right now. 


Hexcel is a manufacturer of advanced composites that offer strength and weight advantages over conventional metals. As such, they help reduce fuel costs without sacrificing structural integrity. 

The company stands out from most of its peers in two different ways. Aerospace suppliers tend to generate revenue from the original equipment manufacturer (OEM) and aftermarket sales. In addition, OEM sales are usually closely tied to aircraft production rates and manufacturers like Boeing and Airbus

So what makes Hexcel different in the industry?

  • Its advanced composites are almost entirely OEM sales (there's little aftermarket demand), so its sales correlate with increased aircraft production. 
  • It's not just about the number of aircraft being produced; Hexcel also has a significant revenue growth opportunity through the increasing amount of its composites used on newer aircraft. 

Putting these two points together, it's clear that the case for buying Hexcel isn't just about aircraft production returning to, say, 2019 levels and then growing in line with historical growth. Instead, the reasoning is that when aircraft production returns to 2019 levels, for example, Hexcel's revenue will be much better because more of its advanced composites are being used on newer aircraft. 

For example, the legacy Airbus A320 had around $300,000 worth of Hexcel content, whereas the newer Airbus A320 neo has about $450,000. It's a similar story with the legacy Boeing 737, which has around $300,000, compared to the newer 737 MAX, which has about $400,000. Moreover, newer planes like the Airbus A330 neo, the Boeing 777X, and the Boeing 787 have $1 million to $2 million worth of Hexcel content.  Hexcel's management estimates that there's $7 billion worth of sales available to Hexcel in OEM (including Airbus and Boeing) backlog -- and it's a figure likely to get bigger as new orders come in. 

Boeing just needs to execute better

Speaking of Boeing, the company finds itself in an unusual position with investors. The stock is down 65% over the last three years and 45% over the last year. While it obviously suffered during the lockdowns, its current problem isn't about end demand; it's about its execution, specifically its ability to deliver on its backlog profitably. 

To put matters into context, Boeing is a company that generated $101 billion in sales and $12.7 billion in free cash flow in 2018. Given that its market cap is just $75 billion now, anything close to those figures in the next few years will make the stock look very cheap. 

While it's true that its net debt has ballooned from $6.2 billion in 2018 to $45 billion as of the most recent quarter, if it meets Wall Street analyst projections for earnings before interest, taxation, depreciation, and amortization (EBITDA) to hit $7.1 billion in 2023 and $10.6 billion in 2024, then the opportunity for debt reduction is significant. 

To get to Wall Street's earnings and cash flow projections there, Boeing needs to execute on its backlog and ramp up its production rate. For example, in June, Boeing had a backlog of 3,431 737 aircraft. Its current production rate is just 31 a month on the 737, implying more than nine years' worth of backlog. Boeing certainly has issues with increasing production in the near term.

Still, the investment proposition is unique because it's essentially a self-help story  -- not something you can usually say about a cyclical industrial company. If Boeing can ramp up production -- and the company's profit margin tends to expand with the more planes it produces as its cost per unit falls -- then investors could see a significant share price recovery in the coming years.