Friday, September 4, 2015

Seeking Alpha: Today's Performance And Valuation Understate Carpenter's Potential

Seven months ago, I had some concerns about the near-term outlook for Carpenter Technology (NYSE:CRS), as I thought near-term weakness in oil/gas demand and recent trend of uninspiring quarterly performance would outweigh a generally positive view of improving aerospace market fundamentals. The shares are about 3% lower today than when I last wrote about Carpenter - basically matching the S&P 500 and significantly outperforming Allegheny Technologies (NYSE:ATI), Alcoa (NYSE:AA), and Universal Stainless & Alloy (NASDAQ:USAP).

The near-term outlook is still dicey. Expectations for fiscal 2016 earnings have come down a few times, but the outlook for fiscal 2017 seems to be getting better (at least from a sell-side perspective). The next few quarters are likely to see revenue contraction due to weakness in energy and industrial demand, but I believe Carpenter can still leverage its specialty alloy expertise to generate long-term revenue growth in the mid-single digits. Given the prospects for growth in aerospace and an eventual recovery in energy, coupled with some scarcity value, I think the company is looking more interesting for investors who can afford to be early to the story.

Continue here:
Today's Performance And Valuation Understate Carpenter's Potential

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