Thursday, October 20, 2016

Materion Past The Worst

Back in April, I thought that Materion (NYSE:MTRN) shares looked a little too cheap and the stock and the shares have since climbed almost 20%. There really aren't many good comps for Materion, so the performance of companies like Eastman Chemical (NYSE:EMN) or Johnson Matthey (OTCPK:JMPLD) isn't all that instructive, nor is the performance of specialty steel, nickel, and titanium alloy companies like Carpenter (NYSE:CRS) or Allegheny (NYSE:ATI). Basically, this is a case where the cheese stands alone, though connector companies like TE Connectivity (NYSE:TEL) and Amphenol (NYSE:APH) do tend to travel in similar directions and have some shared end-market exposures.

The good news for Materion is that business seems to be recovering, as revenue has logged two consecutive sequential improvements and should do so again in the third and fourth quarters. Margins have held up reasonably well through this downturn and free cash flow has remained positive. While I do believe that improving conditions in smartphones, aerospace, satellites, and telecom infrastructure should help the company post better growth over the next three to five years, it's important to remember that Materion has never been a champion in terms of reported return on invested capital or FCF generation. The shares do look a little undervalued, though, and improving momentum in its core addressed markets could still leave a little room for further appreciation.

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Materion Past The Worst

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