Carpenter Technology

Carpenter Technology Corp. ( CRS - Snapshot Report ) is seeing strong demand for its ultra-premium and premium products, along with strength across its aerospace and energy end markets. This Zacks #2 Rank (Buy) specialty alloy maker has plenty to offer aggressive growth investors given its strong demand trends, expanding geographic footprint, capacity additions through new facility build-outs and healthy earnings growth projection this year and beyond.

A Commendable First Quarter

On October 23, Carpenter Technology reported fiscal first-quarter results, including profit that surged 65% year over year to $39.2 million. Earnings per share of 74 cents were in line with the Zacks Consensus Estimate and exceeded last year’s 53 cents.

The bottom line was boosted by contributions from the Latrobe Specialty Steel unit, which the company bought in February 2012. The Latrobe unit includes the Latrobe Specialty Steel Distribution (LSSD) and Mexican distribution businesses that are planned for divestiture.

Revenues shot up nearly 32% year over year to $544.9 million. Sales were boosted by solid growth across the aerospace & defense and energy markets. Revenues from aerospace & defense spiked 45% to $252.6 million on the back of strong demand for engine materials and higher airplane build rates. Energy sales soared 31% to $77.4 million driven by growth in oil & gas and the addition of the Specialty Steel Supply (SSS) energy distribution business.

Carpenter Technology remains on track to achieve 30% growth in its operating income in fiscal 2013, excluding pension expenses. The company continues to expand its footprint across fast-growing overseas markets, while investing in capacity expansions in its core U.S. operation to meet increasing customer demand. Its roughly $500 million investment to build a premium product facility in Alabama and the expansion of its Florida facility underlines this strategy.

In August, the company said that it is divesting its LSSD as well as its Mexican distribution business “Aceros Fortuna” to focus more on its core specialty alloy products for high-growth markets. The divestiture reflects Carpenter’s sustained commitment in growing its specialty alloy business. The company plans to reinvest the proceeds from the sale in its premium product businesses.

Earnings Estimates Rising

The Zacks Consensus Estimate for fiscal 2013 has moved up 0.9% to $3.45 a share in the past 30 days, reflecting an estimated annualized growth of roughly 26%.

For fiscal 2014, the Zacks Consensus Estimate rose by 1.6% over the same period to $4.46 per share, representing a projected year-over-year growth of around 29%.

A Peek at the Chart

The price and consensus chart shows that the earnings estimates lines are well above the stock price, indicating that Carpenter Technology is undervalued. The healthy earnings growth potential has been captured by the gap between the estimate lines for fiscal 2012, 2013 and 2014, something which growth investors should find attractive.

Founded in 1889, Carpenter Technology Corp. makes specialty alloys, including stainless steels, titanium alloys and superalloys primarily for the aerospace and energy industries. It is a major player in the metallurgy industry along with Allegheny Technologies Inc. (ATI). Carpenter, which has a market cap of roughly $2.7 billion, markets its products directly from its production facilities as well as through distribution network and independent distributors.

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