Materion Leaning Into Mounting Headwinds, But Margin Leverage Is Still Meaningful

Good stock/unattractive valuation combinations are often frustrating, but I’m not really surprised that Materion (MTRN) shares have fallen more than 15% since my last update despite strong margin improvements, as the company’s valuation was pretty healthy back in the summer and there have been some signs of deterioration in multiple end-markets.

I don’t exactly love the set-up in 2019, as consumer electronics, auto, energy, and multiple industrial end-markets all look shaky to varying degrees. On the other hand, while near-term revenue growth prospects aren’t great, I do expect ongoing margin improvement (including double-digit EBITDA margins in 2021) on top of the record profitability already achieved by management’s One Materion strategic plan. I still see upside on an EV/EBITDA basis, but a lackluster long-term ROIC and a less impressive DCF-based fair value mitigate my enthusiasm.

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Materion Leaning Into Mounting Headwinds, But Margin Leverage Is Still Meaningful