Wednesday, February 11, 2015

Seeking Alpha: Carpenter Technology Feeling The Pain Before The Gain

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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