Carpenter Technology Corp.
) is seeing strong demand for its ultra-premium and premium
products, along with strength across its aerospace and energy end
markets. This Zacks #2 Rank (Buy) specialty alloy maker has plenty
to offer aggressive growth investors given its strong demand
trends, expanding geographic footprint, capacity additions through
new facility build-outs and healthy earnings growth projection this
year and beyond.
A Commendable First Quarter
On October 23, Carpenter Technology reported fiscal first-quarter
results, including profit that surged 65% year over year to $39.2
million. Earnings per share of 74 cents were in line with the Zacks
Consensus Estimate and exceeded last year's 53 cents.
The bottom line was boosted by contributions from the Latrobe
Specialty Steel unit, which the company bought in February 2012.
The Latrobe unit includes the Latrobe Specialty Steel Distribution
(LSSD) and Mexican distribution businesses that are planned for
Revenues shot up nearly 32% year over year to $544.9 million. Sales
were boosted by solid growth across the aerospace & defense and
energy markets. Revenues from aerospace & defense spiked 45% to
$252.6 million on the back of strong demand for engine materials
and higher airplane build rates. Energy sales soared 31% to $77.4
million driven by growth in oil & gas and the addition of the
Specialty Steel Supply (SSS) energy distribution business.
Carpenter Technology remains on track to achieve 30% growth in its
operating income in fiscal 2013, excluding pension expenses. The
company continues to expand its footprint across fast-growing
overseas markets, while investing in capacity expansions in its
core U.S. operation to meet increasing customer demand. Its roughly
$500 million investment to build a premium product facility in
Alabama and the expansion of its Florida facility underlines this
In August, the company said that it is divesting its LSSD as well
as its Mexican distribution business "Aceros Fortuna" to focus more
on its core specialty alloy products for high-growth markets. The
divestiture reflects Carpenter's sustained commitment in growing
its specialty alloy business. The company plans to reinvest the
proceeds from the sale in its premium product businesses.
Earnings Estimates Rising
The Zacks Consensus Estimate for fiscal 2013 has moved up 0.9% to
$3.45 a share in the past 30 days, reflecting an estimated
annualized growth of roughly 26%.
For fiscal 2014, the Zacks Consensus Estimate rose by 1.6% over the
same period to $4.46 per share, representing a projected
year-over-year growth of around 29%.
A Peek at the Chart
The price and consensus chart shows that the earnings estimates
lines are well above the stock price, indicating that Carpenter
Technology is undervalued. The healthy earnings growth potential
has been captured by the gap between the estimate lines for fiscal
2012, 2013 and 2014, something which growth investors should find
Founded in 1889, Carpenter Technology Corp. makes specialty alloys,
including stainless steels, titanium alloys and superalloys
primarily for the aerospace and energy industries. It is a major
player in the metallurgy industry along with Allegheny Technologies
). Carpenter, which has a market cap of roughly $2.7 billion,
markets its products directly from its production facilities as
well as through distribution network and independent distributors.
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