Wells Fargo downgrades Howmet and Hexcel, cautious on aerospace sector

Brokerage Wells Fargo downgrades aircraft parts suppliers Howmet Aerospace HWM.N and Hexcel Corp .N> to "equal weight" from "overweight"

Trims PT on Howmet to $118 from $132, and Hexcel's to $55 from $63

HXL undervalued compared to its peers; company's earnings likely to decline due to the stagnant Airbus A350 production rate, even before considering the potential impact of an economic slowdown - brokerage

"We estimate a modest economic slowdown (no recession) could reduce aircraft demand by ~300 bps, which translates to 6%/10% impact to aftermarket/OE sales" - Wells Fargo

HXL has high operating leverage, which means its profitability could be significantly affected if the aerospace industry slows down - Wells Fargo

Brokerage believes HWM's valuation is based on the expectation of continued earnings beats and raises, which may be challenging to achieve in a slowing economic growth environment

Including session's moves, HWM stock up 14.5%, and HXL up 4.2% YTD