Carpenter Technology - Aggressive Growth
October 28 2012 - 8:00PM
Zacks
Carpenter Technology Corp. (CRS) is seeing strong demand for
its ultra-premium and premium products, along with strength across
its aerospace and energy end markets. This Zacks #2 Rank (Buy)
specialty alloy maker has plenty to offer aggressive growth
investors given its strong demand trends, expanding geographic
footprint, capacity additions through new facility build-outs and
healthy earnings growth projection this year and beyond.
A Commendable First Quarter
On October 23, Carpenter Technology reported fiscal
first-quarter results, including profit that surged 65% year over
year to $39.2 million. Earnings per share of 74 cents were in line
with the Zacks Consensus Estimate and exceeded last year’s 53
cents.
The bottom line was boosted by contributions from the Latrobe
Specialty Steel unit, which the company bought in February 2012.
The Latrobe unit includes the Latrobe Specialty Steel Distribution
(LSSD) and Mexican distribution businesses that are planned for
divestiture.
Revenues shot up nearly 32% year over year to $544.9 million.
Sales were boosted by solid growth across the aerospace &
defense and energy markets. Revenues from aerospace & defense
spiked 45% to $252.6 million on the back of strong demand for
engine materials and higher airplane build rates. Energy sales
soared 31% to $77.4 million driven by growth in oil & gas and
the addition of the Specialty Steel Supply (SSS) energy
distribution business.
Carpenter Technology remains on track to achieve 30% growth in
its operating income in fiscal 2013, excluding pension expenses.
The company continues to expand its footprint across fast-growing
overseas markets, while investing in capacity expansions in its
core U.S. operation to meet increasing customer demand. Its roughly
$500 million investment to build a premium product facility in
Alabama and the expansion of its Florida facility underlines this
strategy.
In August, the company said that it is divesting its LSSD as
well as its Mexican distribution business “Aceros Fortuna” to focus
more on its core specialty alloy products for high-growth markets.
The divestiture reflects Carpenter’s sustained commitment in
growing its specialty alloy business. The company plans to reinvest
the proceeds from the sale in its premium product businesses.
Earnings Estimates Rising
The Zacks Consensus Estimate for fiscal 2013 has moved up 0.9%
to $3.45 a share in the past 30 days, reflecting an estimated
annualized growth of roughly 26%.
For fiscal 2014, the Zacks Consensus Estimate rose by 1.6% over
the same period to $4.46 per share, representing a projected
year-over-year growth of around 29%.
A Peek at the Chart
The price and consensus chart shows that the earnings estimates
lines are well above the stock price, indicating that Carpenter
Technology is undervalued. The healthy earnings growth potential
has been captured by the gap between the estimate lines for fiscal
2012, 2013 and 2014, something which growth investors should find
attractive.
Founded in 1889, Carpenter Technology Corp. makes specialty
alloys, including stainless steels, titanium alloys and superalloys
primarily for the aerospace and energy industries. It is a major
player in the metallurgy industry along with Allegheny Technologies
Inc. (ATI). Carpenter, which has a market cap of roughly $2.7
billion, markets its products directly from its production
facilities as well as through distribution network and independent
distributors.
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