There’s been a sharp divergence this year between industrials, which were hit hard in March but have largely come back, and aerospace companies which were hit hard in March and have basically stayed down ever since. While Crane (CR) is undeniably leveraged to aerospace (it was the company’s highest-margin business by far) and also leveraged to consumer/leisure more than most multi-industrials, the nearly 40% year-to-date decline in Crane’s share price seems excessive to me.
To be sure, I do have some concerns about Crane. I’m concerned that the Fluid Handling doesn’t earn the sort of margins it should for its supposed reputation and market share, and I’m likewise concerned that Crane will find it hard to break out of what has been a relatively narrow operating margin band since 2013, particularly with a longer path to normal in the aerospace business. Still, I’m only looking for long-term revenue growth on the cusp between the low and mid-single-digits, and not much margin/FCF margin improvement, and Crane looks undervalued relative to what I think are reasonable, if not conservative, assumptions.
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