Hexcel: 3 Different Insiders Have Sold Shares During The Last 30 Days

|
 |  About: Hexcel Corporation (HXL)
by: Markus Aarnio

In this article, I will feature one industrial stock that has seen intensive insider selling during the last 30 days. Intensive insider selling can be defined by the following three criteria:

  1. The stock was sold by three or more insiders within one month.
  2. The stock was not purchased by any insiders in the month of intensive selling.
  3. At least two sellers decreased their holdings by more than 10%.

Hexcel Corporation (NYSE:HXL) engages in the development, manufacture, and marketing of lightweight and high-performance structural materials for use in commercial aerospace, space and defense, and industrial applications.

Click to enlarge

Insider selling during the last 30 days

Here is a table of Hexcel's insider-trading activity during the last 30 days by insider.

Name Title Trade Date Shares Sold Rule 10b5-1 Current Ownership Decrease In Ownership
Lynn Brubaker Director Jan 2-10 5,933 Yes 3,500 shares 62.9%
Ira Krakower SVP Dec 23-24 20,888 Yes 229,005 shares 8.4%
Michael Macintyre Treasurer Dec 19 1,000 Yes 732 shares + 6,507 options 12.1%
Click to enlarge

There have been 27,821 shares sold by insiders during the last 30 days. All these shares were sold pursuant to a Rule 10b5-1 plan.

SEC Rule 10b5-1 is a regulation enacted by the United States Securities and Exchange Commission (SEC) in 2000. The SEC states that Rule 10b5-1 was enacted in order to resolve an unsettled issue over the definition of insider trading, which is prohibited by SEC Rule 10b-5. After Rule 10b5-1 was enacted, the SEC staff publicly took the position that canceling a planned trade made under the safe harbor does not constitute insider trading, even if the person was aware of the inside information when canceling the trade. This staff interpretation raises the possibility that executives can exploit this safe harbor by entering into 10b5-1 trading plans before they have inside information while retaining the option to later cancel those plans based on inside information.

For example, a CEO of a company could call a broker on January 1 and enter into a plan to sell a particular quantity of shares of his company's stock on March 1, find out terrible news about his company on February 1 that will not become public until April 1, and then go forward with the March 1 sale anyway, saving himself from losing money when the bad news becomes public. Under the terms of Rule 10b5-1(b) this is insider trading because the CEO "was aware" of the inside information when he made the trade. But he can assert an affirmative defense under Rule 10b5-1(c), because he planned the trade before he learned the inside information.

In general, it is a safer way for an insider to sell shares pursuant to a Rule 10b5-1 trading plan than without it.

Insider selling by calendar month

Here is a table of Hexcel's insider-trading activity by calendar month.

Month Insider selling / shares Insider buying / shares
January 2014 5,933 0
December 2013 21,888 0
November 2013 0 0
October 2013 15,000 0
September 2013 2,197 0
August 2013 12,000 0
July 2013 3,167 0
June 2013 0 0
May 2013 23,000 0
April 2013 7,000 0
March 2013 25,952 0
February 2013 118,553 0
January 2013 1,286 0
Click to enlarge

There have been 235,976 shares sold, and there have been zero shares purchased by insiders since January 2013.

Financials

Hexcel reported the third-quarter financial results on October 21 with the following highlights:

Revenue $412.3 million
Net income $48.7 million
Cash $59.7 million
Debt $266.8 million
Click to enlarge

Outlook

Hexcel's guidance is as follows:

2013 2014
Revenue $1.655-$1.685 billion $1.80-$1.88 billion
EPS $1.80-$1.86 $2.00-$2.12
Click to enlarge

Click to enlarge

(Source: December presentation)

Competition

Hexcel's competitors include Cytec Industries (NYSE:CYT), and Toray Industries (OTCPK:TRYIY). Here is a table comparing these companies.

Company HXL CYT TRYIY
Market Cap: 4.51B 3.27B 109.00B
Employees: 4,973 6,600 42,584
Qtrly Rev Growth (yoy): 0.05 0.02 0.16
Revenue: 1.64B 1.93B 21.50B
Gross Margin: 0.27 0.32 0.19
EBITDA: 310.20M 362.50M 2.14B
Operating Margin: 0.15 0.15 0.05
Net Income: 177.70M 137.20M 735.01M
EPS: 1.74 3.61 0.44
P/E: 26.03 25.52 152.76
PEG (5 yr expected): 1.51 1.39 N/A
P/S: 2.73 1.69 5.07
Click to enlarge
Click to enlarge

Hexcel has the second-highest P/S ratio among these three companies. In Cytec, there have been 150,569 shares sold, and there have been zero shares purchased by insiders since January 2013. Only Hexcel has seen intensive insider selling during the last 30 days.

Conclusion

There have been three different insiders selling Hexcel, and there have not been any insiders buying Hexcel during the last 30 days. Two of these three insiders decreased their holdings by more than 10%. Hexcel has an insider ownership of 0.40%.

Before entering short Hexcel, I would like to get a bearish confirmation from the Point and Figure chart. The main reason for the proposed short entry is the intensive insider-selling activity.

Disclosure: I have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.