Company Profile (excerpt from Reuters): Carpenter Technology Corporation, incorporated on October 3, 1968, is engaged in the manufacturing, fabrication and distribution of specialty metals. The Company’s segments include Specialty Alloys Operations (SAO) and Performance Engineered Products (PEP). The Company develops, manufactures and distributes cast/wrought and powder metal stainless steels, and special alloys, including high temperature (iron-nickel-cobalt base), stainless, corrosion resistant, controlled expansion alloys, ultra-high strength and implantable alloys, tool and die steels and other specialty metals, as well as cast/wrought titanium alloys. The Company manufactures and rents down-hole drilling tools and components used in the oil and gas industry. It provides material solutions to the changing needs of the aerospace and defense, energy, transportation, medical and industrial and consumer industries.
Downloadable PDF version of this valuation:
ModernGraham Valuation of CRS – August 2018
Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?
What kind of Intelligent Investor are you?
| Defensive Investor; must pass 6 out of the following 7 tests. | ||||
| 1. Adequate Size of the Enterprise | Market Cap > $2Bil | $2,743,503,184 | Pass | |
| 2. Sufficiently Strong Financial Condition | Current Ratio > 2 | 3.24 | Pass | |
| 3. Earnings Stability | Positive EPS for 10 years prior | Pass | ||
| 4. Dividend Record | Dividend Payments for 10 years prior | Pass | ||
| 5. Earnings Growth | Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end | 101.68% | Pass | |
| 6. Moderate PEmg Ratio | PEmg < 20 | 23.12 | Fail | |
| 7. Moderate Price to Assets | PB Ratio < 2.5 OR PB*PEmg < 50 | 1.87 | Pass | |
| Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor. | ||||
| 1. Sufficiently Strong Financial Condition | Current Ratio > 1.5 | 3.24 | Pass | |
| 2. Sufficiently Strong Financial Condition | Debt to NCA < 1.1 | 0.67 | Pass | |
| 3. Earnings Stability | Positive EPS for 5 years prior | Pass | ||
| 4. Dividend Record | Currently Pays Dividend | Pass | ||
| 5. Earnings Growth | EPSmg greater than 5 years ago | Pass | ||
Stage 2: Determination of Intrinsic Value
| EPSmg | $2.51 |
| MG Growth Estimate | 3.64% |
| MG Value | $39.59 |
| Opinion | Overvalued |
| MG Grade | C+ |
| MG Value based on 3% Growth | $36.37 |
| MG Value based on 0% Growth | $21.32 |
| Market Implied Growth Rate | 7.31% |
| Current Price | $57.98 |
| % of Intrinsic Value | 146.46% |
Carpenter Technology Corporation qualifies for both the Defensive Investor and the Enterprising Investor. The Defensive Investor is only initially concerned with the high PEmg ratio. The Enterprising Investor has no initial concerns. As a result, all value investors following the ModernGraham approach should feel comfortable proceeding with the analysis.
As for a valuation, the company appears to be Overvalued after growing its EPSmg (normalized earnings) from $2.02 in 2015 to an estimated $2.51 for 2019. This level of demonstrated earnings growth does not support the market’s implied estimate of 7.31% annual earnings growth over the next 7-10 years. As a result, the ModernGraham valuation model, based on the Benjamin Graham value investing formula, returns an estimate of intrinsic value below the price.
At the time of valuation, further research into Carpenter Technology Corporation revealed the company was trading above its Graham Number of $49.79. The company pays a dividend of $0.72 per share, for a yield of 1.2% Its PEmg (price over earnings per share – ModernGraham) was 23.12, which was below the industry average of 32.08, which by some methods of valuation makes it one of the most undervalued stocks in its industry. Finally, the company was trading above its Net Current Asset Value (NCAV) of $-7.15.
Carpenter Technology Corporation receives an average overall rating in the ModernGraham grading system, scoring a C+.
Stage 3: Information for Further Research
| Net Current Asset Value (NCAV) | -$7.15 |
| Graham Number | $49.79 |
| PEmg | 23.12 |
| Current Ratio | 3.24 |
| PB Ratio | 1.87 |
| Current Dividend | $0.72 |
| Dividend Yield | 1.24% |
| Number of Consecutive Years of Dividend Growth | 0 |
Useful Links:
| ModernGraham tagged articles | Morningstar |
| Google Finance | MSN Money |
| Yahoo Finance | Seeking Alpha |
| GuruFocus | SEC Filings |
Most Recent Balance Sheet Figures
| Balance Sheet Information | 6/1/2018 |
| Total Current Assets | $1,178,800,000 |
| Total Current Liabilities | $363,300,000 |
| Long-Term Debt | $545,700,000 |
| Total Assets | $3,007,000,000 |
| Intangible Assets | $332,000,000 |
| Total Liabilities | $1,521,100,000 |
| Shares Outstanding (Diluted Average) | 47,900,000 |
Earnings Per Share History
| EPS History | |
| Next Fiscal Year Estimate | $3.48 |
| Jun2018 | $3.92 |
| Jun2017 | $0.99 |
| Jun2016 | $0.23 |
| Jun2015 | $1.11 |
| Jun2014 | $2.47 |
| Jun2013 | $2.73 |
| Jun2012 | $2.53 |
| Jun2011 | $1.59 |
| Jun2010 | $0.04 |
| Jun2009 | $1.08 |
| Jun2008 | $5.70 |
| Jun2007 | $4.32 |
| Jun2006 | $4.04 |
| Jun2005 | $2.69 |
| Jun2004 | $0.75 |
| Jun2003 | -$0.28 |
| Jun2002 | -$2.71 |
| Jun2001 | $0.44 |
| Jun2000 | $1.16 |
| Jun1999 | $0.79 |
Earnings Per Share – ModernGraham History
| EPSmg History | |
| Next Fiscal Year Estimate | $2.51 |
| Jun2018 | $1.93 |
| Jun2017 | $1.12 |
| Jun2016 | $1.40 |
| Jun2015 | $2.02 |
| Jun2014 | $2.27 |
| Jun2013 | $1.98 |
| Jun2012 | $1.80 |
| Jun2011 | $1.80 |
| Jun2010 | $2.29 |
| Jun2009 | $3.46 |
| Jun2008 | $4.27 |
| Jun2007 | $3.14 |
| Jun2006 | $2.00 |
| Jun2005 | $0.71 |
| Jun2004 | -$0.23 |
| Jun2003 | -$0.52 |
Recommended Reading:
Other ModernGraham posts about the company
Carpenter Technology Corp Valuation – Initial Coverage $CRS
Other ModernGraham posts about related companies
Disclaimer:
The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to review our detailed disclaimer.
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