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Carpenter Technology (CRS) Down 29% in a Year: What's Ailing It?

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Carpenter Technology Corporation’s CRS shares have declined 29.4% in the past year compared with the industry’s decline of 6.2%. The company is witnessing project delays owing to extended lead times for certain materials and the availability of outside contractors. Additionally, supply chain constraints and logistics disruptions are impairing its ability to meet production targets. These factors are denting the stock’s performance.

 

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Zacks Investment Research


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Factors Ailing the Stock

Carpenter Technology is witnessing delays in some projects due to outside contractors’ availability and extended lead times for certain materials. Moreover, supply chains continue to see challenges, mainly around longer-than-anticipated lead times and ongoing logistics disruptions. These factors will likely impact the company’s ability to meet production targets.

CRS is also bearing the brunt of Omicron-led isolations and challenges associated with hiring targeted production positions. Carpenter Technology’s transportation market suffers from chip shortages due to supply chain headwinds.
 
The company’s oil and gas submarket is witnessing a demand-supply imbalance. Supply shortages in this market has been further challenged by recent geopolitical disruptions. The market bore the brunt of reduced drilling activity in North America. Though the oil and gas sub-market activity in the United States is witnessing signs of recovery, the uptick in activity levels will likely remain below the pre-pandemic levels. Carpenter Technology has thus taken several actions to reduce production and selectively produce materials-based customer orders. The company’s decision to lower inventory continues to adversely impact the near-term results.

Is Rebound Possible?

Carpenter Technology is gaining from improved end-market demand, supported by record booking and strong backlog growth in third-quarter fiscal 2022. Management anticipates this momentum will continue through fiscal 2022. The industrial and consumer market is expected to witness continued strong demand for consumer electronics, IoT and semiconductor applications for its ultra-high-purity materials. In the transportation end-use market, demand in the light-duty submarket remains strong on increased customer spending.

The company has been witnessing broad-based demand recovery in the aerospace and defense and medical end-use market, which will continue in calendar 2022. Aerospace is gaining from strong lead times coupled with several contract wins. In defense, the company is benefiting from increased investments with customers on the development of the next-gen programs and platforms. Ongoing recovery in elective surgeries from the Omicron variant is driving the medical end-use market.  Medical procedures are expected to rise to pre-pandemic levels in the second half of the calendar year 2022. The company expects these trends will continue in the upcoming quarters.

Carpenter Technology’s financial position is strong, which gives it the flexibility to strengthen its long-term growth profile by investing in emerging technologies like additive manufacturing and soft magnetics. As electric vehicle demand continues to grow and program activity increases for electrifying short-range air travel, the company is increasing investments in motor technology and soft magnetic solutions.

The company has been implementing cost-reduction initiatives and portfolio realignments that are anticipated to drive significant cost savings. It expects to spend nearly $90 million in capital expenditures for fiscal 2022 and prioritize capital investments to target the existing and future growth markets.

Carpenter Technology currently carries a Zacks Rank #4 (Sell).

Stocks to Consider

Some better-ranked stocks in the basic materials space are Allegheny Technologies Inc. ATI, Nutrien Ltd NTR and Albemarle Corporation ALB, each flaunting a Zacks Rank #1 (Strong Buy), at present. You can see the complete list of today’s Zacks #1 Rank stocks here.

Allegheny has a projected earnings growth rate of 869.2% for the current year. The Zacks Consensus Estimate for ATI's current-year earnings has been revised 27.3% upward in the past 60 days.

Allegheny’s earnings beat the Zacks Consensus Estimate in each of the last four quarters. It has a trailing four-quarter earnings surprise of roughly 128.9%, on average. ATI has gained around 3% in a year.

Nutrien has a projected earnings growth rate of 163.2% for the current year. The Zacks Consensus Estimate for NTR’s current-year earnings has been revised 27.5% upward in the past 60 days.

Nutrien’s earnings beat the Zacks Consensus Estimate in three of the trailing four quarters, the average being 5.8%. NTR has gained roughly 29% in a year.

Albemarle has a projected earnings growth rate of 203.7% for the current year. The Zacks Consensus Estimate for ALB’s current-year earnings has been revised 100.4% upward in the past 60 days.

Albemarle’s earnings beat the Zacks Consensus Estimate in each of the trailing four quarters, the average being 22.5%. ALB has gained around 28% in a year.


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