Materion Rewarded For Exceeding Even Bullish Margin-Improvement Assumptions

I’ve commented many times over the years that successful turnarounds, particularly when the company has some meaningful moats, can significantly exceed expectations. That’s certainly been playing out at Materion (MTRN), as the company’s restructuring efforts – including a more lucrative product mix and a shift toward a more variable cost structure – have paid off better than the Street or I expected. With that, the shares are up more than 20% over the past year – significantly outperforming kinda/sorta comps like Allegheny (ATI), Carpenter (CRS), and Johnson Matthey (OTCPK:JMPLY).

I’m reluctant to just assume that Materion can’t find still more ways to improve itself, but I’m already valuing the company on the assumptions that 2019 EBITDA margin will reach a new peak (and continue to improve) and that FCF margin will reach a new peak in 2020 (and continue to improve). On the other hand, these improvements have come despite weak trends in consumer electronics and auto electronics, and improved revenue growth in a couple of years could unlock even more leverage.

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Materion Rewarded For Exceeding Even Bullish Margin-Improvement Assumptions