The Boeing Company (BA): How to Profit from the Next Big Thing in Airplane Innovation

Cytec and Hexcel Look Like Winners

I believe the two companies best positioned to capitalize on the secular growth story for aerospace carbon fibers are Cytec and Excel, both of which supply aerospace carbon composites to aircraft manufacturers. In its May 2013 investor presentation, Cytec projected that roughly 50% of its 2013 revenue would be generated by its aerospace materials division, which is primarily dedicated to supplying carbon fiber composite parts for airplane manufacturers. Cytec Industries Inc (NYSE:CYT) essentially doubled down on its aerospace materials business during the last few years by divesting lower-margin, unrelated businesses such as its building blocks and coating resins businesses, and acquiring British aerospace composite supplier Umeco in July 2012. Like its competitor Cytec Industries Inc (NYSE:CYT), Hexcel is also heavily levered to the airplane carbon composites revolution, with 60% of its 2012 sales tied to the commercial airplane market.

Neither company is trading cheaply, with Cytec trading at roughly 21 times trailing twelve month (TTM) at the end of June 2013, after incorporating retroactive financial statement changes that the company announced on July 8, 2013 to reflect pension accounting revisions. By that same measure, Hexcel Corporation (NYSE:HXL) also traded for roughly 21 times TTM earnings at the end of June 2013. However, when one considers the long runway for profitability growth that the aerospace carbon composites market is positioned to enjoy due to the ongoing secular shift from metals to carbon fiber in aircraft bodies, the higher-than-average valuation multiples for industry players Cytec and Hexcel Corporation (NYSE:HXL) may very well be worth paying, in my opinion.

The article How to Profit from the Next Big Thing in Airplane Innovation originally appeared on Fool.com and is written by John Park.

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