Materion's Lagging Share Price Performance Getting More Interesting

 

Writing about Materion (MTRN) in early March, I said that I liked the company’s near-term leverage to improving end-markets in 2021 and the long-term opportunities available from restructuring the business toward more high-value opportunities, but I didn’t find the valuation so compelling. With the shares down about 5% since then, underperforming the S&P 500 by more than 20%, I’m much more intrigued by the opportunity.

The core of the Materion bull story revolves around the company’s prioritization of higher-value opportunities in areas like semiconductors, industrial end-markets, aerospace, and consumer electronics driving materially higher reported margins – from the mid-to-high single-digits for EBITDA margin to, say, the low teens and possibly the mid-teens over time, with the FCF margins likewise doubling from the low-to-mid single-digits to the mid-to-high single-digits.

I’m increasingly bullish on those prospects, and if Materion can deliver long-term core revenue growth around 6% and bring FCF margins up to around 7% to 8% (driving FCF core growth of 13%), these shares offer long-term annualized double-digit return potential.

 

Click here to continue: 

Materion's Lagging Share Price Performance Getting More Interesting