Carpenter Technology Shares Have Bounced, But There's Room To Go On A Cyclical Recovery

This has been a brutal down-cycle for Carpenter Technology (CRS), but I believe the company has reached the low point for revenue and margins. The shape of the recovery is still in doubt, as narrowbody aircraft production should improve before year-end, but widebody production likely won’t rebound until 2022. In the meantime, auto and truck production should continue to improve, medical should benefit as vaccinations reduce COVID-19 hospitalizations, and industrial demand returns. Energy-related sales are likely to be lackluster for at least this year, if not 2022 as well.

When I last wrote about Carpenter I saw upside to around $30, but I wasn’t confident on the timing; aerospace-related names subsequently took off after the election and have held those gains. With more confidence that the cycle has bottomed, I do see a little more upside in these shares in the near term on the basis of a cycle-average multiple, with upside into the $40’s if investor enthusiasm really heats up again.

 

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Carpenter Technology Shares Have Bounced, But There's Room To Go On A Cyclical Recovery