Wednesday, January 3, 2018

Carpenter Technology About To See A Significant Ramp

The three-year period from mid-2014 to mid-2017 wasn't especially kind to specialty alloy companies like Carpenter Technology (CRS), Allegheny Technologies (ATI), Haynes International (HAYN), and Universal Stainless & Alloy (USAP), as a sharp market decline in energy and several heavy industrial end-markets coincided with a sluggish period in aerospace that was exacerbated by many industry players (especially on the fastener side) moving to a more efficient inventory management approach.

It's a different part of the cycle now, though, and Carpenter should enjoy several years of good revenue growth and improving margins - not only due to improving end-market demand and volume-driven leverage but also significant changes brought about by the CEO in how the company operates. Although the shares don't look like a bargain on the basis of long-term cash flow, I think there's a credible argument for a fair value in the mid-$50's to low $60's on an EBITDA basis, though I would remind and caution investors that this is a stock to "date", not "marry".

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Carpenter Technology About To See A Significant Ramp

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