Hexcel's `Honeycomb' Looks Sweet

On the Street, one investor's poison is often another's meat. That's how investment manager Bob Gintel feels about his recent purchase of 260,000 shares, or nearly 8%, of Hexcel, one of the world's major producers of "honeycomb" materials, used largely in aircraft and trains.

Gintel, president of the high-ranked Gintel Funds, purchased the big block of shares from an investor group that acquired them in late 1990, when Hexcel had sunk to a low of 9 a share. The once high-flying stock had hit 35 the year before. At that point, the group figured Hexcel was an attractive takeover bet. But after two frustrating years of waiting, the group finally bailed out in late June and sold the stake to Gintel, at 11 a share.

Gintel is convinced that Hexcel is more undervalued now--with or without a takeover. Trading on the Big Board at 11 1/2, Hexcel is way below its book value of 19 and sells at a modest price-earnings ratio of 10, based on Gintel's estimated 1992 earnings of $1.05 a share. And based on next year's $1.40 estimate, the stock carries a p-e of 8. Gintel expects the stock to sell in the low 20s over the next 12 to 18 months. "Earnings are in a long-term uptrend again," says Gintel, who is forecasting a net of $2 a share in 1994--not including money that Hexcel expects from some projects ahead.

TUNNEL VISION. Right now, some 45% of Hexcel's sales come from the aerospace industry, which is in a slump as a result of defense cutbacks. Both Boeing and France's Airbus Industrie are major customers. The honeycomb is produced from a combination of aluminum, fiberglass, carbon, and thermoplastic, and the product's high strength and light weight make it ideal for use in airplanes and missiles.

Cecil Godman, Gintel Funds' director of investments, says Hexcel is actively developing commercial markets for its products in order to lessen the company's dependence on aerospace. In particular, honeycombs are being used in the construction of the Channel Tunnel between Britain and France, which Godman thinks could bring in earnings of 50 cents a share this year or next, depending on the project's progress.

One moneymaker that has gotten little publicity is Hexcel's tie-up with Reebok International, which uses Hexcel's honeycomb in the sole and arch support of some of its shoes. Last year, Reebok accounted for $10 million of Hexcel's $387 million in revenues. Godman sees that figure rising to $18 million this year. He also notes that Hexcel is talking to the major auto makers about using honeycomb in some car models.

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