Hexcel Director Makes Largest Buy for Years (HXL)

From Insider Score: A longtime director at structural materials maker Hexcel (HXL) has stepped up with the largest insider buy at the company in more than three years.

Martin Solomon, chairman of HXL's compensation committee and a member of the board since 1996, bought 25K shares at $23.11 to $23.20 on May 8th/9th, bringing his holdings in HXL to approximately 93.4K shares. Three weeks ago, Solomon paid almost $600K to exercise options on 40K shares at $14.88. The options were set to expire later this month, and Solomon held onto the stock. His buy marks the first by any corporate insider at HXL since November 2003, when he and another director bought around the $6.00 mark, and Solomon's buy is the largest on record at HXL since new SEC filing rules went into effect in mid-2003. Solomon, who is listed as a private investor on HXL's website, was formerly the chairman and CEO of American Country Holdings, an insurance company that was acquired by Kingsway Financial Services (KFS) in 2002.

Solomon's buy, which was disclosed late yesterday, is pushing shares of HXL higher this morning, and the stock is now close to its eight-year high of $24.23, which was hit on April 24th. The stock is up more than 40% over the past 52 weeks, and it's more than tripled since the beginning of 2004.

HXL is the largest producer of carbon fiber in the U.S.; the world's largest weaver of structural fibers; a major producer of fiberglass electronic materials; and the world's top producer of composite materials such as honeycomb, prepregs, film adhesives, and sandwich panels. The company's products are used mainly in military and aerospace applications, but HXL's materials also end up in everything from computer and cell-phone chips to tennis racquets and snowboards.

HXL shares were trading strongly ahead of the company's after-the-bell April 24th earnings report, but the stock shed about -5% in the immediate aftermath of earnings as the company missed Wall Street estimates. HXL's Q1 earnings came in at $14.5M, or 15 cents per share, missing analyst estimates by 4 cents per share, but reversing from a year-ago loss of -$24.7M, or -46 cents per share (HXL took a -$40.3M early debt retirement charge in Q105). Revenue, meanwhile, rose 5.6% to $307M, as HXL's commercial aerospace unit saw sales grow by 17% to $153.2M.

"As expected, we saw a return to a strong growth rate in the Commercial Aerospace market, driven by build rate increases at Boeing (BA) and Airbus as well as a pick up in revenues to the A380 program. Our top-line growth was somewhat masked by the year-on-year strengthening of the U.S. dollar as well as the continued slow down in ballistics demand; however, we are pleased with the pace of both Commercial Aerospace and Wind Energy markets" said Chairman, President, and CEO David Berges.

"Sales strengthened as the quarter progressed," Berges continued, "pushing up the quarter-end accounts receivable balance. Despite increased capital spending, we still expect to generate cash to modestly repay debt for the year of 2006."

In the wake of earnings, Jefferies & Co. maintained its "buy" rating on HXL, but analyst Howard Rubel lowered his FY2006 earnings estimate by -2 cents to 80 cents per share, reflecting the disappointing Q1 results, a higher effective tax rate for the company, and increased R&D spending. "We still believe the company can generate over 10 percent growth for the year," Rubel wrote, noting potential contracts to supply parts for BA's massive 787 Dreamliner jet, scheduled for release in 2008.

Analysts at Wedbush Morgan, meanwhile, downgraded HXL from "buy" to "hold," and cut their target on the stock from $25 to $23. Conversely, analysts at Ryan Beck were bullish after HXL's conference call, saying that the company added additional insights into the quarter on the call and that an announcement from competitor Toray was misconstrued as being negative for HXL. The Ryan Beck analyst called the post-earnings sell-off a "buying opportunity" (the firm has an "outperform" rating and $28 target on HXL).

Worth Noting: HXL Chief Financial Officer Stephen Forsyth sold or exercised and sold over $2.4M in stock earlier this week. The transactions were made under a 10b5-1 trading plan that Forsyth adopted in March. Meanwhile, HXL's institutional shareholder roster was recently shaken up.

In mid-March, shareholders sold 21.43M shares of HXL in a secondary offering (the company saw no proceeds). Approximately 12.8M of the shares were sold by affiliates of Goldman Sachs (GS), which cut its stake in HXL from 15.2% to 1.4%. Another 8.6M shares were sold by Berkshire Partners and Greenbriar Equity Group, which saw its combined stake drop from 10.2% to 1%. Based on recently filed Form 13Gs, buyers most likely included Fidelity Management & Research, which saw its stake jump from 2.34% at the end of 2005 to 13%, tops among HXL shareholders. Meanwhile, Tontine Capital Management recently disclosed that it now holds a 7.21% stake, up from 3.65% at the end of 2005.