Seeking Alpha: Carpenter Technology Upgrading Capacity And Margins At The Right Time

The success or failure of Carpenter Technology (CRS) is ultimately going to have much to do with the fate of the commercial aerospace cycle, so how you feel about that market certainly plays into whether this is a worthwhile idea to consider. Apart from that, though, Carpenter has been making moves to broaden its end market mix (including a growing opportunity in energy). Carpenter is also adding high-end capacity ahead of an expected upswing in demand and this move should prove a good one for both sales and margins.

With more than 40% of sales tied to the cyclical aerospace market (and another 20% or so tied to other cyclical markets like autos/transportation and energy), cash flow-based methodologies don't work particularly well here. Carpenter Technology has historically carried a full-cycle EBITDA multiple around 7.5x, but multiples are usually in the low double-digits at this point in the cycle (ahead of a significant pick-up in results). Assigning a 10x multiple to the average 2014 EBITDA estimate results in a target in the high $60s, and I think Carpenter is an idea worth considering today.

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Carpenter Technology Upgrading Capacity And Margins At The Right Time