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Reasons to Hold Carpenter Technology in Your Portfolio for Now

Zacks Equity Research

Carpenter Technology Corporation CRS) looks promising at the moment, backed by strong demand across most of its end-markets, acquisitions, continued execution of its commercial strategy and strong financial position.
 
Carpenter Technologyhas a Zacks Rank #3 (Hold) and a VGM Score of A. Here V stands for Value, G for Growth and M for Momentum. The company’s score is a weighted combination of these three scores. Such a score allows you to eliminate the negative aspects of stocks and select winners. 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.
 
Below, we briefly discuss few other factors that make the stock worth holding on to.

Ahead of the Industry: The stock has gained around 33.9% year to date, outperforming the industry’s growth of 18.3%.

Underpriced:  Carpenter Technology has a forward 12 month Enterprise Value to EBITDA ratio of 7.2, which is below the industry average of 8.3.
 
Positive Earnings Surprise History: The companyhas outpaced the Zacks Consensus Estimate in three of the trailing four quarters, with an average positive earnings surprise of 5.66%.

Poised for Improved Q4: In the third quarter of fiscal 2019, the company’s backlog rose 9% sequentially and 44% year over year, which bodes well for fourth-quarter fiscal 2019 performance. For the Specialty Alloys Operations (SAO) segment, the company expects continued positive demand across most end-use markets for fourth quarter of fiscal 2019. Operating income is anticipated to increase 5-10% sequentially, after adjusting for insurance recovery.

For the Performance Engineered Products (PEP) segment, the company anticipates continued demand for titanium products to drive revenues in the fourth quarter of fiscal 2019. Operating income is projected to remain flat sequentially after adjusting for insurance benefit. The company also plans to make continued investments in additive manufacturing.

The Zacks Consensus Estimate for earnings per share (EPS) for fourth quarter-fiscal 2019 is currently pegged at 94 cents, suggesting year-over-year growth of 8.05%.

Estimates Northbound: The Zacks Consensus Estimate for EPS for fiscal 2019 and fiscal 2020 have gone up 5% and 1%, respectively, over the past 90 days.

Solid Growth Projections: The Zacks Consensus Estimate for EPS for fiscal 2019 is currently pegged at $3.44, indicates year-over-year improvement of 37.60%. The estimate for fiscal 2020 EPS is at $3.89, suggesting year-over-year growth of 13.18%.

Other Growth Drivers: Sales to the Aerospace and Defense end-use market continues to be robust, reflecting the impact of a strong product mix for materials utilized in aerospace engine applications and strong demand for defense applications driven by specific programs. Strong market conditions within the orthopedic and cardiology sub-markets will continue to bolster sales. The company intends to increase titanium capacity, backed by planned expansion of Dynamet business unit within the next fiscal year. Sales to the Energy end-use market has also been increasing on the back of oil and gas sub-market expansion and improved demand for power generation applications.

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. Carpenter Technology will also continue to grow on the back of its acquisitions which include LPW Technology Ltd., CalRAM, and Puris LLC.

Return on Equity (ROE): Carpenter Technology’s ROE of 9.9% is higher than the ROE of 8.9% for the industry, highlighting its efficiency in utilizing shareholders’ funds.

Stocks to Consider

A few better-ranked stocks in the Basic Materials space are Materion Corporation MTRN, Flexible Solutions International Inc FSI and AngloGold Ashanti Limited AU, all currently sporting a Zacks Rank #1. You can see the complete list of today’s Zacks #1 Rank stocks here.

Materion has an expected earnings growth rate of 27.3% for 2019. The company’s shares have gained 44.34% so far this year.

Flexible Solutions has an outstanding projected earnings growth rate of 342.9% for the current year. The company’s shares have soared 204.44% year to date.

AngloGold has an estimated earnings growth rate of 90.6% for the ongoing year. Its shares have surged 41.19% this year so far.

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Flexible Solutions International Inc. (FSI) : Free Stock Analysis Report
 
AngloGold Ashanti Limited (AU) : Free Stock Analysis Report
 
Materion Corporation (MTRN) : Free Stock Analysis Report
 
Carpenter Technology Corporation (CRS) : Free Stock Analysis Report
 
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