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After the recent death of astronaut Neil Armstrong, the first man on the moon, it's worth noting that the first lunar footprints didn't actually come from Armstrong. That distinction belongs to Hexcel Corp (HXL).

A pioneer in the manufacture of high-performance materials, Hexcel made the composite footpads on the Apollo 11 lunar module, as well as similar components for the Mercury and Gemini space programs. Hexcel continues to dominate the composites market and is positioned to ride the accelerating shift toward these super-tough materials in a wide range of industries.

Composites are polymer materials reinforced with carbon fiber, forming a strengthened combination that's light, flexible and durable. The next decade will see an explosion in the use of composite materials, in a variety of applications that include cars, trains, planes, satellites, boats, bicycles, housing materials, sporting goods, and wind energy.

According to a 2012 report by Materials Technology Publications, annual global sales of composites are estimated to reach $28.2 billion by 2015 and $48.7 billion by 2020, up from $16.1 billion in 2011.

A study released in August by the Freedonia Group, a research firm, forecasts that composite sales in the US alone will rise at a compound annual growth rate (CAGR) of 15 percent, to $10.2 billion in 2016. By 2020, the two major industrial applications for composites automotive and wind energy will account for 46 percent of the world's total demand.

In a July report, Frost & Sullivan predicted that the automotive composites market would grow to $95.5 million by 2017, at a whopping CAGR of 30.6 percent.

The continual push for greater fuel efficiency is boosting demand for lightweight composites to replace metal parts in automotive manufacture. On August 28, the Obama administration issued rules that require automakers to nearly double the average fuel economy of new cars and trucks by 2025. Composites are also integral to electric/hybrid and fuel cell vehicles.

Meanwhile, development banks are ramping up capital expenditures in wind energy projects across the world. In 2011, they invested almost $75 billion in wind from a total of $260 billion in clean energy projects.

The best play on the world's growing thirst for composites is Stamford, Conn.-based Hexcel, the largest US-producer of carbon fiber and by far the number one producer of aerospace composite materials.

As demand increases for these sophisticated materials, many manufacturers lack the engineering experience and skills to move away from metal-based assembly lines, forcing them to turn to Hexcel.

Hexcel is a leading supplier of composites for all markets but the company's greatest opportunities for growth stem from aerospace, where the use of composites is the most significant manufacturing watershed since aluminum replaced wood in the 1920s.

Hexcel is the chief composite supplier for aerospace giant Boeing (BA), which has bet the farm on its new Dreamliner 787, a composite-built passenger aircraft. Composites offer dramatic performance benefits for aircraft, including reduced weight, improved fuel burn, and better resistance against corrosion and damage.

Composites reduce aircraft pollution through greater fuel economy, an important consideration in the wake of stricter emission controls imposed this year on aviation by European Union regulators. They also allow greater aircraft speed, opening up new competitive opportunities for hard-pressed airlines.

That's why aircraft manufacturing giant Boeing has embraced these futuristic materials for its commercial aircraft. Forced to follow suit has been Boeing's chief rival Airbus SAS, a subsidiary of the huge Franco-German conglomerate European Aeronautic Defence & Space Co, or EADS.

Aircraft manufacturing is showing strong signs of recovery this year and Hexcel stands to be a big beneficiary. The US Commerce Department reported that orders for durable goods rose in July by 4.2 percent, up 6.7 percent compared to a year earlier and the biggest increase since December. The main catalyst for the increase was Hexcel's client Boeing, which reported 260 aircraft orders in July.

Riding Strong Tailwinds

These tailwinds are keeping the company aloft. On July 23, Hexcel reported second-quarter 2012 revenue of $399.2 million, 12.9 percent higher than the $353.7 million reported for the same quarter a year ago. Second-quarter earnings were $48 million, or $0.47 in earnings per share (EPS), compared to $37.4 million or $0.37 in EPS for the year-ago quarter.

Management reaffirmed its 2012 outlook for total annual revenue to be in the range of $1.55 billion to 1.65 billion. Hexcel also reported that it would devote up to $275 million in capital expenditures this year to expand manufacturing capacity, with the money coming from internal cash generation.

Hexcel maintains three divisions: commercial aerospace, space and defense, and industrial. Second-quarter revenue in the company's commercial aerospace division was $233.5 million, an increase of 12.4 percent from the year-ago quarter.

Revenue attributed to new composite-built aircraft from Boeing and Airbus represented more than 15 percent of the company's commercial aerospace sales; demand from these two manufacturing giants will serve as a crucial driver of the stock's future growth.

Second-quarter space and defense revenue was $88.1 million, a year-over-year increase of 7.8 percent. Industrial sales, which include automotive and wind energy components, were $77.6 million, an increase of 20.9 percent.

Hexcel sports a price-to-earnings (P/E) ratio of 13, slightly below the P/E of 13.6 for its sector of industrial goods, making this composite king an undervalued stock for investors seeking recession-resistant, long-term growth amid a still troubled economy.

Source: Composites Pioneer Hexcel May Be The Best Stock For A Second Obama Term