Carpenter Technology Corporation (CRS) has 45% exposure to the aerospace industry and about 20% to the oil and gas industry for its specialty metals business, standing out among metal providers thanks to their highly differentiated and diverse product base, says Arun Viswanathan, Senior Equity Analyst at Longbow Research.
“What we like on Carpenter is they really changed their product profile and really focused on what they deem as premium and ultrapremium type of products, so within metals, they’re going after niche applications of high nickel-based alloy applications and stainless steels that are geared toward aerospace and oil and gas for growth markets, and they have 10,000 SKUs, and so there is a lot of product differentiation and that has typically allowed them to hold on to more pricing power versus more commodity-oriented products in titanium and stainless steel, which is a greater portion of ATI and RTI‘s sales,” Viswanathan said.
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Viswanathan rates CRS a “buy,” and he says the company’s acquisition of Latrobe will result in synergies and increased productivity. He adds that there is some new capacity coming online in a couple of years, which he says will increase CRS‘s presence in the premium and ultrapremium market.
“The last thing I’d mention on Carpenter is that currently it’s trading at 11 to 12 times consensus 2014 numbers, which is very attractive versus ATI at 16 times and RTI actually at over 20 times p/e multiple. Because of their 45% exposure to aerospace, we think that the multiple for Carpenter should be more like 16, 17 times 2014, and that would put that stock in the low 60s or so — so we see lot of the upside there,” Viswanathan said.
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