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Benchmark raises Carpenter Technology shares target on A&D demand

EditorEmilio Ghigini
Published 07/26/2024, 08:25 AM
CRS
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On Friday, Benchmark analyst updated the outlook for Carpenter Technology (NYSE: NYSE:CRS) shares, a company known for its specialty alloy products. The price target was raised to $175.00, marking an increase from the previous $140.00, while the firm retained a Buy rating on the stock.

The adjustment reflects Benchmark's confidence in Carpenter Technology's performance, particularly due to its versatile alloy products that have wide-ranging applications in the aerospace and defense sectors. The demand in these areas has been strong, fueled by growing passenger demand and geopolitical factors.

However, the supply chain faced challenges as original equipment manufacturers (OEMs) like Boeing (NYSE:BA), Raytheon Technologies (NYSE:RTX), General Electric (NYSE:GE), and Airbus encountered unique ramp-up issues.

Carpenter Technology's ability to flexibly allocate its products across OEMs, the aftermarket, and defense has been a key advantage. This adaptability has allowed the company to optimize its workforce, achieve a balance in working capital inventory, and secure pricing power in the face of extended lead times demanded by customers, which have reached beyond 65 weeks.

The firm's performance is also bolstered by the aerospace industry's dynamics, with Airbus and Boeing's extended production timelines potentially prolonging the favorable business cycle for Carpenter Technology.

The anticipation of increased volumes from GE and Raytheon (NYSE:RTN) Technologies turning a corner adds to the positive outlook, especially as Carpenter Technology's operations have started to surpass pre-pandemic margin levels.

Benchmark highlights the rapid progress Carpenter Technology has made, as evidenced by the forward pull of the FY27 guidance by two quarters consecutively. The robust backlog, strong free cash flow profile, which includes a $400 million buyback, and improved margin projections around 25% EBITDA, are factors supporting a potential re-rating of the stock. The analyst concludes that the new price target is still seen as conservative, given the company's solid financial and operational foundations.

In other recent news, Carpenter Technology Corporation reported a robust financial performance for the fiscal fourth quarter and the full year of 2024. The company exceeded its guidance by achieving $125 million in adjusted operating income for Q4, marking a 12% increase. Alongside, sales demonstrated a 15% sequential increase, primarily fueled by higher volumes, an improved product mix, and increased pricing.

The Specialty Alloy Operations (SAO) segment emerged particularly strong, boasting an adjusted operating margin of 25.2%. Significant growth was observed in the aerospace and defense markets, as well as the medical sector. Carpenter Technology anticipates sustained demand and profitability growth in these areas moving forward.

In other recent developments, the company projected a record $460 million to $500 million in operating income for fiscal year 2025. The SAO segment's first quarter operating income for the same fiscal year is expected to range from $127 million to $133 million. Furthermore, Carpenter Technology unveiled a share repurchase program of up to $400 million.

Lastly, the company is closely collaborating with the Department of Defense on next-generation products and is experiencing a strong order intake, with a larger order book compared to pre-COVID levels.

Despite no major investments in capacity expansion being planned, the company's strategic focus on maintaining a strong order book and managing supply-demand dynamics seems to be yielding positive outcomes.

This article was generated with the support of AI and reviewed by an editor. For more information see our T&C.

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