Steel Stocks

Carpenter Technology Corp Valuation – August 2018 $CRS

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

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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

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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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