Crane Co. - Growth & Income
December 13 2011 - 7:00PM
Zacks
Crane Co. (CO) recently delivered its 7th consecutive
positive earnings surprise on 18% sales growth and an expanding
operating margin. Analysts raised their estimates following strong
third quarter results, sending the stock to a Zacks #2 Rank (Buy).
Based on consensus estimates, analysts project 31%
EPS growth for Crane this year and 14% growth next year. On top of
this, the company pays a dividend that yields 2.2%.
Company Description
Crane Co. manufactures highly engineered industrial
products for the aerospace, electronics, hydrocarbon processing,
petrochemical, chemical, power generation, automated merchandising,
transportation and other markets.
Crane has 5 business segments:
Fluid Handling: 46% of sales
Aerospace & Electronics: 26%
Merchandising Systems: 15%
Engineered Materials: 8%
Controls: 5%
The company was founded in 1855 and has a market
cap of $2.7 billion.
Third Quarter Results
Crane reported better than expected results for the
third quarter of 2011. Earnings per share came in at 89 cents,
beating the Zacks Consensus Estimate by a penny. It was a stellar
27% increase over the same quarter in 2010.
Sales jumped 18% to $659 million, well ahead of the
Zacks Consensus Estimate of $634 million. Crane experienced an 11%
increase in core sales and benefited 3% from foreign currency
effects and 3% from an acquisition.
Except for Engineered Materials, each segment
experienced year-over-year sales growth.
Operating profit surged 31% as the company
leveraged its fixed expenses. The operating margin improved from
11.2% to 12.5% of sales.
Outlook
Following the strong third quarter, CEO Eric Fast
stated that "although there are indications of a slowing global
economy, our strengthened portfolio of businesses and broad
geographic exposure position us well for profitable growth."
Management also raised the lower end of its
earnings guidance range. It now expects 2011 EPS between $3.35 and
$3.45 per share. This prompted analysts to revise their estimates
higher, sending the stock to a Zacks #2 Rank (Buy).
The Zacks Consensus Estimate for 2011 is $3.40,
within guidance, and representing 31% growth over 2010 EPS. The
2012 consensus estimate is now $3.86, corresponding with 14% EPS
growth.
Consensus estimates have steadily risen over the
last several months as Crane has delivered 7 consecutive positive
earnings surprises:
Dividend
On top of strong EPS growth, Crane pays a dividend
that yields a solid 2.2%. As you can see, the company has been
raising its dividend over the last several years:
Valuation
The valuation picture looks very reasonable for
Crane. Shares trade at just 12.2x 12-month forward earnings,
in-line with the industry average.
Its price to book ratio of 2.5 is a slight premium
to the industry average of 2.3, but this appears to be justified
given its superior returns on equity.
The Bottom Line
With strong earnings momentum, solid growth
projections, an attractive 2.2% dividend yield and reasonable
valuation, Crane offers investors a lot to like.
Todd Bunton is the Growth & Income Stock
Strategist for Zacks Investment Research and Co-Editor of the
Reitmeister Value Investor.
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