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Investing.com -- S&P Global Ratings has revised its outlook for Hexcel Corp (NYSE:HXL). to stable from positive, while affirming the 'BB+' issuer credit rating. The firm also confirmed the 'BB+' issue-level rating on Hexcel's senior unsecured debt. These actions were taken on April 9, 2025.
The revision comes as Hexcel demonstrated resilience in its credit metrics amidst market challenges. However, S&P Global Ratings anticipates these market headwinds to persist over the next year, which could temper the company's revenue growth.
Despite challenges in the aerospace industry, including supply chain bottlenecks and lower than anticipated production rates, Hexcel's performance in 2024 remained strong. The company delivered growth and maintained robust credit metrics. Nevertheless, the production levels in the commercial aerospace market are still below the normalized rates of 2019.
Previously, S&P Global Ratings had expected Hexcel to reach pre-pandemic EBITDA scale in the 2025-2026 timeframe, a factor considered crucial for a higher rating. However, slower recovery in aircraft production rates has led to a more gradual increase in Hexcel's earnings.
Looking ahead, Hexcel is predicted to experience modest growth, with revenue expected to increase between 7.5% and 12.5% in 2025 and 2026. Key growth factors include improving build rates for commercial aerospace platforms such as Boeing (NYSE:BA) & Airbus narrowbody aircraft, and increased global defense spending benefiting the defense segment.
Hexcel, known for its composite materials, is also expected to benefit from the continued adoption of these materials in various aircraft types. The company is currently divesting some of its non-core operations within the industrials segment, which has historically been a drag on financial performance.
In terms of financials, EBITDA margins are expected to remain stable in 2025, with a gradual expansion anticipated in 2026. Despite supply chain constraints and inflation pressures, Hexcel's credit metrics are expected to remain stable.
Hexcel's financial policy is expected to become more aggressive over the next 12-24 months, with continued shareholder returns and increased activity in inorganic growth opportunities. Despite this, the company has maintained prudent leverage levels, ensuring a stable financial foundation.
The stable outlook reflects S&P Global Ratings' expectation that Hexcel's credit metrics will remain appropriate for the rating over the next 12 months. The company is well positioned to benefit from improving aircraft build rates, but supply chain bottlenecks are expected to persist, limiting improvement in the near term.
S&P Global Ratings could lower its ratings on Hexcel if FFO to debt fell below 20% and was expected to remain at such level. This could occur due to various factors, including slowing commercial aircraft build rates, a higher cost environment causing margins to diminish, or management pursuing a more aggressive financial policy.
On the other hand, the rating could be raised if Hexcel’s EBITDA approached pre-pandemic levels while maintaining EBITDA margins and if FFO to debt was above 30%. This would likely occur if there was less volatility in aircraft build rates, margins improved closer to pre-pandemic levels, and the company maintained a moderate financial policy.
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