Carpenter Is Seeing Good Demand Growth, But Operating Leverage Remains A Work In Progress

While it has been frustrating at times, specialty alloy company Carpenter (CRS) has been making progress. The shares are up 11% from when I last wrote about the company, beating the S&P 500 over that time and matching Allegheny (ATI), but lagging Haynes (HAYN) and Universal Stainless (USAP). Along the way, the company has been posting some good revenue growth, though margin leverage has been more of a laggard than I'd hoped.

Carpenter shares do still look undervalued, though the 20% or so gap in valuation I previously saw has now shrunk to around 10%, and I'm a little concerned that my out-year margin assumptions are a bit too aggressive. Still, demand is taking off in the aerospace market, the company is still doing well in the medical and transport market, and oil/gas demand continues to recover. What's more, there seems to be a real sense of urgency on the part of customers to get the company's Athens facility qualified, something that should lead to meaningfully higher utilization and significant margin leverage.

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Carpenter Is Seeing Good Demand Growth, But Operating Leverage Remains A Work In Progress