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Carpenter Technology Rides on Solid Markets & Acquisitions

Zacks Equity Research

On Aug 7, we issued an updated research report on Carpenter Technology Corporation CRS. Efforts to strengthen customer relationships, continued execution of its commercial strategy, and acquisitions will aid the company’s growth. Strong demand across most of its end markets, barring transportation, bode well.

Upbeat Q4 Earnings on Strong Demand

Carpenter Technology delivered adjusted earnings $1.00 per share in the fourth quarter of fiscal 2019, higher than the year-ago quarter’s 88 cents per share. Strong operational performance and healthy demand across key end-use markets led to the improvement in the quarterly results.

Notably, the company has witnessed 10 consecutive quarters of year-over-year growth in both the top and bottom line. Further, in the fourth quarter of fiscal 2019, backlog improved 2% sequentially and 41% year over year — exhibiting the 12th consecutive quarter of sequential backlog growth and the 10th quarter of year-over-year growth. Moreover, the fourth quarter marked its strongest quarterly operating income performance since fiscal year 2013.

Poised for Improved Q1

For the Specialty Alloys Operations segment, the company anticipates sustained demand across most end-use markets for fourth quarter of fiscal 2019. However, seasonal impact of European customer shutdowns and planned preventative maintenance will impact results. Operating income will be down 10-15% sequentially but up 40-45% year over year.

For the Performance Engineered Products segment, the company expects continued strong demand for titanium products to drive results in the first quarter of fiscal 2020. Operating income is expected in the range of $3 million to 5 million. The company also plans to make continued investments in additive manufacturing.

End Markets Remain Strong, Transportation Ails

Within aerospace, the company is witnessing continued strength in engine and fastener demand. The underlying aerospace market remains robust on large backlog of plane orders and significant growth projected in air travel miles, especially in developing economies. The Medical end-use market is also poised to perform well on strong demand for titanium and cobalt solution, planned expansion at Dynamet, and positive underlying trends in the orthopedic and cardiology markets.

However, transportation end-use market sales have been affected by weaker demand for the company’s applications, of late. This can be attributed to trade actions and tariffs, which have affected customer order patterns. Further, weak global light vehicle market is negatively impacting sales.

Commercial Strategy & Acquisitions: Other Catalysts

Carpenter Technology remains focused on continued execution of its commercial strategy. Through the ongoing implementation of the Carpenter Operating Model, the company has unlocked incremental capacity via efficiency and productivity improvements.

The company also increased 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 $100 million investment in precision strip hot rolling mill. The LPW acquisition strengthens Carpenter Technology’s hold as a dominant Additive Manufacturing Solutions Provider. The company has built its additive portfolio with acquisitions of CalRam and Puris, and construction of an emerging technology center in Athens, AL to capitalize on the rapid AM growth. Notably, with the Puris buyout, the company also marked its entry in the promising titanium powder market.Carpenter Technology launched the Carpenter additive business unit, which offers its complete spectrum of products, services and capabilities to meet the growing additive market needs. The company projects capital expenditure of $170 million in fiscal 2020.

Price Performance

Year to date, Carpenter Technology’s shares have gained 31.5%, outperforming the industry’s growth of 5.9%.

Zacks Rank & Other Stocks to Consider

Carpenter Technology currently sports a Zacks Rank #1 (Strong Buy).

Some other top-ranked stocks in the basic materials space are SSR Mining Inc SSRM, Alamos Gold Inc. AGI and Arconic Inc. ARNC, all flaunting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

SSR Mining has an expected earnings growth rate of 134.8% for 2019. The company’s shares have surged 38% so far this year.

Alamos Gold has a projected earnings growth rate of a whopping 260% for the current year. The company’s shares have gained 99% year to date.

Arconic has an estimated earnings growth rate of 38.2% for the ongoing year. The stock has moved up 50% so far this year.

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