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Bear of the Day: Carpenter Technology (CRS)

Neena Mishra

While this company may get back on track in the longer-term, there are too many near-term challenges. In view of the cloudy outlook, investors should avoid this Zacks Rank # 5 (Strong Sell) stock as of now.

About the Company

Carpenter Technology Corporation is a manufacturer and distributor of specialty alloys, including stainless steel and titanium, and various engineered products made from metallic and ceramic materials.

These products are used in planes, cars and trucks, electronic equipment, medical devices, industrial fittings, sporting goods, and oil and gas exploration and processing.

Disappointing Third Quarter Results

On April 25, CRS reported its third quarter fiscal 2013 results. Net adjusted income for the quarter was $0.69 per share, down from $0.84 per share in the prior-year quarter. The results were below consensus estimate of $0.74 per share.

The company also missed on the revenue front. The management revised down their full fiscal year 2013 earnings outlook to low double-digit growth from 20-30% growth forecasted earlier.

The quarterly results were hurt by increased customer deferrals. The company stated that its January deferrals and cancellations increased by 40% over their recent historical run-rate. Weak sales to distribution customers also impacted the results.  

Downward Estimates Revisions

After disappointing results, four analysts have revised their estimates downwards. The Zacks Consensus Estimate for the current quarter has gone down from $0.91 per share, 30 days ago to $0.71 per share at present. For full year 2013 too, the estimate has gone down from $3.07 per share to $2.74 per share.

The company has delivered an average negative earnings surprise of 1.67% for the last four quarters.

The Bottom Line

CRS is currently Zacks Rank # 5 (Strong Sell) stock and it also has a longer-term recommendation of “Underperform”.

Further, Zacks industry rank of 252 out of 265 also indicates more weakness to come in the near term.

Better Plays in the Industry?

As of now, none of the companies in specialty steel industry have been ranked “Buy” or “Strong Buy” by us. Two companies RTI International (RTI) and Sutor Tech Group (SUTR) are ranked #3 (Hold), of which SUTR has a longer-term recommendation of “Outperform”. However, in view of the negative industry outlook, investors may like to avoid this space altogether for the time being.

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