Carpenter Technology (CRS)

We are upgrading the shares of Carpenter Tech (CRS) to a Strong Buy and raising estimates ahead of the quarterly earnings report scheduled for next week. Management commentary and near-term segment guidance should confirm our bullish thesis and stronger specialty material survey data points collected during CY2Q. There now seems to be a disconnect between investor expectations around metals/materials group and forward-looking projections provided by contacts levered to premium alloys and stainless products. Continue reading

We are lowering Carpenter Technology (CRS) estimates to align with the cautious corporate guidance issued earlier in the week. Capping off a problematic six-month period, the management team attributed an unplanned forge press outage, inflationary pressures, and labor shortage issues to revised SAO expectations and a much lower FY2Q EPS outlook of ($0.60)-($0.65). Given the limited near-term earnings visibility and growing market share concerns, we are downgrading CRS to an Outperform rating (versus a Strong Buy). Continue reading

We reexamined our investment rating and target price following the issuance of a relatively messy quarterly report and disappointing segment guidance, which forced us to lower fiscal-year estimates. Ultimately, we decided to maintain the STRONG BUY rating on the shares, despite the near-term margin uncertainty and possible customer agitation with late mill shipments, for three reasons: (1) confidence in underlying aerospace demand strength for CY22; (2) limited raw material cost exposure for CRS versus the peer group; and (3) potential top-line benefits associated with the on-going Special Metals strike. Continue reading

We are lowering estimates for Carpenter Technology (CRS) once again to better align with the potential risks highlighted in a report published last week (BA787 and military/defense) and to discount the impact from a delayed ramp in premium alloy mill demand. Additional analysis suggests the company may be 1-2 quarters away from realizing any benefits (or positive EPS results) associated with improving jet engine orders and/or commercial aircraft build rates. Moreover, CRS may have slightly more exposure to any negative direct/indirect events tied to the coronavirus variant outbreak, semiconductor chip shortage, and Boeing 787 program instability (versus the peer group). Continue reading

Highlighting mixed-to-negative titanium survey reads and macro headlines over the past few weeks. At this point, our market intelligence and analysis indicate a slight downward bias to near-term earnings expectations for companies levered to titanium and other specialty alloys. Continue reading

We are initiating coverage on Carpenter Technology (CRS) with a Strong Buy investment rating and $50/share target price. Following a short period of trading weakness, we are comfortable with the lower entry point. The shares look undervalued today, especially after the consideration of better-than-expected survey results and backdrop of macroeconomic strength, rebounding channel sentiment, commodity nickel price inflation and enhanced commercial aero demand visibility. Market intelligence suggests the specialty materials group is at or near a summer inflection point which should be followed by a multi-year period of above-average top-line growth. Continue reading

We are making a rotational call within the aerospace coverage group, now favoring upstream suppliers that appear to be positioned to benefit from a changing commercial aircraft production environment. The investor narrative may shift to the premium forgers and/or specialty materials providers earlier-than-expected as the supply chain readies for a sharp inflection in demand for 737MAX or A320neo applications, looking beyond negative near-term earnings expectations. As such, we are changing ratings on a few companies that fit into that description. Today, we are formally upgrading Hexcel Corporation (HXL) and Haynes International (HAYN) to Strong Buy investment ratings and moving Allegheny Technologies (ATI) over to Outperform. We had previously rated all three Hold. Continue reading