With Margin Leverage Emerging, Can Carpenter Technology Get Going?

Carpenter Technology (CRS) has been a frustrating story to watch, as a good recovery in oil/gas and strong demand growth in aerospace and medical don’t seem to be resonating all that strongly with the market. I wasn’t quite so bullish on Carpenter in May as I was earlier in the year, but I’m surprised the shares haven’t really budged since then. While they have outperformed Allegheny (ATI), Haynes (HAYN), and Universal Stainless (USAP), I don’t think the market is really very bullish on the prospects for Carpenter to continue to garner parts qualifications from aerospace customers and fill that under-utilized Athens plant.

I remain more bullish than the Street on this one, as I do believe ramping aerospace demand and ongoing recovery-driven demand in oil and gas will support volume. I’m also bullish on the company’s opportunities in additive manufacturing (especially in medical), though I see some risk to the Transport segment as heavy truck builds slow. If I’m right about the upcoming ramp, particularly in higher-value specialty products, gross margins could move into the 20%’s in this upcoming fiscal year, and I believe a mid-$60’s fair value is still in play.

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With Margin Leverage Emerging, Can Carpenter Technology Get Going?