On Aug 18, we issued an updated research report on Carpenter Technology Corporation CRS. Efforts to strengthen customer relationships, execution of its commercial strategy, acquisitions and investments in additive manufacturing will fuel the company’s growth. Also, solid demand across most of its end markets, barring transportation, bodes well.
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.
Notably, the company has witnessed 11 consecutive quarters of year-over-year growth in both the top and bottom lines. Further, in the fiscal first quarter, 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.
Poised for Stellar Q2
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 drive 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. However, the Amega West business might face challenges due to headwinds in the oil & gas industry, especially in North America.
End Markets Strong, Transportation Woes Remain
Strong 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.
However, the transportation end-use market sales have been affected by weaker demand for the company’s applications, of late. This has resulted from trade actions and tariffs, which are impacting customer order patterns. In addition, a dismal global light vehicle market has been dampening sales.
Commercial Strategy & Acquisitions: Other Catalysts
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.
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 AM growth. Notably, with one additional VAP qualification, the company will continue to see benefits from its Athens facility. The company projects capital expenditure of $170 million in fiscal 2020.
Over the past year, Carpenter Technology’s shares have gained 29.3%, outperforming the industry’s growth of 7.4%.
Zacks Rank & Stocks to Consider
Carpenter Technology currently carries a Zacks Rank #3 (Hold)
A few better-ranked stocks in the Basic Materials space are Franco-Nevada Corporation FNV, Agnico Eagle Mines Limited AEM and Kinross Gold Corporation KGC. While Franco-Nevada and Agnico Eagle sport a Zacks Rank #1 (Strong Buy), Kinross Gold carries a Zacks Rank of 2 (Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.
Franco-Nevada has a projected earnings growth rate of 39.3% for the ongoing year. The company’s shares have rallied 47.6% in a year’s time.
Agnico Eagle has an outstanding estimated earnings growth rate of 168.6% for the current year. Its shares have appreciated 65.7% over the past year.
Kinross has an expected earnings growth rate of a whopping 210% for 2019. The company’s shares have surged 77.1% in the past year.
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