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Carpenter Technology Up 39% YTD: What's Working in Favor?

Zacks Equity Research

Shares of Carpenter Technology Corporation CRS have rallied 38.5% year to date, aided by its upbeat first-quarter fiscal 2020 earnings, efforts to strengthen customer relationships, execution of commercial strategy, acquisitions and investments in additive manufacturing.

Carpenter Technology has a market cap of roughly $2.35 billion. For the last three months, its average volume of shares traded has been approximately 227K.

Notably, the stock’s 38.5% year-to-date rally has outperformed the industry’s growth of 12.9%.


 

Carpenter Technology currently carries a Zacks Rank #3 (Hold) and has a VGM Score of B. In fact, our research shows that stocks with a VGM Score of A or B, when combined with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3, make solid investment choices.

Let’s delve deeper and analyze the reasons behind the company’s impressive price performance and find out if there is room for further appreciation:

Upbeat Q1 Earnings on Solid Demand

Carpenter Technology delivered adjusted earnings of 85 cents per share in the first quarter of fiscal 2020, up from the year-ago quarter’s 65 cents per share. Stellar operational performance, richer product mix, strong commercial and operating execution, and better conditions in key end-use markets resulted in this upside.

The company has witnessed 11 consecutive quarters of year-over-year growth in both top and bottom lines. Further, in the fiscal first quarter, its backlog improved 26% year over year, aided by growth in key Aerospace and Defense and Medical end-use markets. This also marks the 11th consecutive quarter of year-on-year backlog growth. Moreover, the company registered the highest quarterly operating income in six years during this period.

Healthy Growth Projections: The Zacks Consensus Estimate for earnings per share is currently pegged at $3.92 for fiscal 2020, indicating year-over-year growth of 13.29%. For fiscal 2021, the Zacks Consensus Estimate for earnings is pegged at $4.43, calling for year-over-year growth of 13.14%.

Growth Drivers in Place

Carpenter Technology continues to bank on the robust market conditions through the execution of its solutions-focused approach. Through the implementation of the Carpenter Operating Model, the company has unlocked incremental capacity via operational process improvements. Moreover, it is well poised to gain from continued execution of commercial strategy and benefits from share gains across end-use markets by solidifying customer relationships.

For the Specialty Alloys Operations segment, the company anticipates strong demand across most end-use markets for the second quarter of fiscal 2020. The segment also has an additional opportunity to boost near-term productivity and capacity. It is well poised to deliver record fiscal second-quarter results.

For the Performance Engineered Products segment, the company expects robust demand for titanium products in the Dynamet business to boost its performance. The Dynamet expansion project is likely to close by the end of the fiscal second quarter. The company also plans to make continued investments in additive manufacturing.

Impressive execution of commercial and manufacturing strategies continues to drive year-over-year revenue and earnings growth in the Aerospace and Defense and Medical end-use markets. In Aerospace, the company has been witnessing growth in engine and fastener demand, with significant backlog. The Medical end-use market is also poised to perform well on stellar demand, expansion at Dynamet, and positive underlying trends in the orthopedic, dental and cardiology markets.

The company has also increased its focus and investment in targeted growth areas such as additive manufacturing and soft magnetics. The investment in the soft magnetics portfolio remains on track with the $100-million investment in its precision strip hot-rolling mill. The LPW acquisition has fortified Carpenter Technology’s hold as a dominant Additive Manufacturing Solutions Provider.

The company has built its additive portfolio with the acquisitions of CalRam and Puris, and construction of an emerging technology center in Athens, AL, in a bid to capitalize on rapid additive manufacturing growth. The company projects capital expenditure of $170 million in fiscal 2020.

Stocks to Consider

Some better-ranked stocks in the Basic Materials space are General Moly, Inc GMO, Franco-Nevada Corp. FNV and Sandstorm Gold Ltd SAND, each currently carrying a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

General Moly has an expected earnings growth rate of 12.5% for the current fiscal year. The company’s shares have gained 7.2% in the past year.

Franco-Nevada has a projected earnings growth rate of 45.3% for 2019. The company’s shares have rallied 36.5% in a year.

Sandstorm Gold has an estimated earnings growth rate of 166.7% for the current year. Its shares have moved up 45.9% in the past year.

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