Specialty alloy producers haven't had a great run over the last year, with Carpenter Technology (NYSE:CRS) down about 30%, Universal Stainless & Alloy (NASDAQ:USAP) and Precision Castparts (NYSE:PCP) down more than 20%, and Allegheny Technologies (NYSE:ATI)
up 3% (but still lagging the S&P 500). Inventory destocking of
higher-value components has played a role, but so have concerns about
the near-term future of oil/gas spending and nickel prices.
Carpenter
has committed some unforced errors along the way, including unplanned
outages and higher than expected costs at the new Athens facility, and
those have been exacerbated by what sometimes feels like "death by a
thousand papercuts" serial downward guidance revisions. On a more
positive note, the Athens facility still holds the potential to
significantly improve the company's premium alloy capacity and its peak
margins and aircraft/aircraft engine manufacturers ought to be busy for
many years delivering on their orders books.
The extent to which
Carpenter looks like a good investment idea today really rests with your
conviction that the company will start participating in the commercial
aerospace ramp over the next few years and that this process will
restore the company's margins and asset efficiency to prior levels. I'm more bullish on Universal Stainless, but I think stocks like Carpenter Technology and Alcoa (NYSE:AA) will be higher in a few years' time on the back of commercial aviation and an eventual oil/gas recovery.
Read more here:
Carpenter Technology Feeling The Pain Before The Gain
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