On Tuesday, TD Cowen's analysts increased the price target for Carpenter Technology (NYSE:CRS) shares to $220 from the previous target of $200, while maintaining a Buy rating on the company.
The analysts highlighted the company's robust execution and the breadth of its backlog, which provides the flexibility to offset potential weaker demand from Boeing (NYSE:BA)'s original equipment manufacturing (OE). The analysts noted that Carpenter Technology's incremental gains from pricing and operational leverage are expected to lead to high EBIT gains compared to peers.
In addition, the analysts pointed out the company's disciplined approach to capital allocation, favoring stock buybacks over growth capital expenditures. The valuation, according to the analyst, remains reasonable. The new price target of $220 reflects TD Cowen's continued positive outlook on the stock. Despite projecting a fiscal second-quarter adjusted EPS of $1.60, which is slightly below the Street's consensus, the firm anticipates higher sales for the company.
Sales for Carpenter Technology are estimated to have grown by 18% year-over-year in the fiscal second quarter, which is a 3% increase from the first fiscal quarter. This growth is attributed to a richer sales mix, particularly strength in Aerospace & Defense (A&D), along with continued pricing gains and incremental productivity improvements. The demand for jet engine alloys is presumed to have remained strong, even in light of Boeing's IAM work stoppage that concluded on November 5, due to robust delivery figures from Airbus in the fourth quarter, including the ramp-up of LEAP and GTF engines, as well as steady demand for spares and industrial gas turbine (IGT) backfill.
TD Cowen's model for Carpenter Technology's fiscal second-quarter adjusted operating income is $119 million, which falls within the company's guidance range of $116 to $123 million. This forecast implies a margin increase of 550 basis points year-over-year and a consistent margin compared to the first fiscal quarter, with all margin expansion confined to the Specialty Alloys Operations (SAO) segment.
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