CRS's Future Looks Bright: Analyst Forecasts Steady Earnings Growth And Margin Improvements For FY27

Benchmark analyst Josh Sullivan reiterated a Buy rating on Carpenter Technology Corporation CRS, raising the price target to $100 from $65.

Airline demand for aircraft and engines is robust. Still, the fragility of the aerospace supply chain is causing significant disruptions, as Boeing Company BA, RTX Corporation RTX, Spirit Aerosystems Holdings, Inc. SPR, General Electric Company GE, Airbus SE EADSY, etc., have recently experienced. 

However, the analyst notes that CRS is leveraging an attractive layer within the aerospace supply chain that offers broad cycle exposure but limited platform-specific risk. 

CRS is a prime example of a Golden Goose Zone requiring limited capex, broad platform exposure, and pricing power. 

Further, given the pervasive use of nickel alloys, CRS is relatively agnostic to the disruptions Boeing and Airbus have faced or design/manufacturing issues RTX and GE have faced.

Sullivan adds that CRS alloys are in demand across all platforms and aftermarkets, therefore, if individual programs face delays, demand for alloys offers flexibility. 

Lastly, CRS has pricing power, with backlogs now closed out beyond 12 months, mentions the analyst. 

Net, the analyst believes CRS offers compelling exposure to an attractive aerospace cycle while mitigating platform-specific risk, FY27 guidance looks conservative, and valuation is poised to re-rate with margin improvements and steady earnings growth.

CRS's spring investor day highlighted a four-year 40%+ CAGR for operating income and 80% FCF conversion in FY27 (~$250 million, ~$5/share, ~8% FCF yield). 

With EBITDA margins working towards 20%, double-digit top-line growth, and steady, durable earnings growth ahead, Sullivan believes CRS is beginning to re-rate from upper-teens P/E to low 20's. 

For FY24, the analyst raised EPS estimates to $3.71 from $3.21; revenue estimates increased to $3.110 billion from $2.985 billion.

For FY25, Sullivan increased the EPS forecast to $4.86 from $4.24; revenue estimate was lowered to $3.413 billion from $3.497 billion.

Price Action: CRS shares are trading higher by 6.89% to $68.70 on the last check Wednesday.