When good execution runs into bad market headwinds, it's usually the headwinds that determine the course of the company and that has been the case for Materion (NYSE:MTRN). Although there are a lot of attributes in Materion's favor - including its unique mine-to-mill integration, its strong market share and its demonstrated capabilities in developing new advanced materials and alloys - the company's exposure to weak markets like oil and gas and unimpressive FCF margins and returns on capital are more problematic.
I do believe that Materion will eventually see a recovery in the
oil/gas sector and that growth in end markets like defense, aerospace,
autos and high-end smart phones can drive revenue growth. I also believe
that mid-single-digit FCF margins are attainable as the company
leverages more high-value product introductions. While Materion does
look undervalued now, this company has never shown the year-in, year-out
excellence that I'd like to see from a potential long-term holding.
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Bludgeoned By Energy, China, And Consumer Electronics, Materion Waiting For The Rebound