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Bear Of The Day: Carpenter Technology Corporation (CRS)

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Carpenter Technology Corporation (CRS - Free Report) has slipped to a Zacks Rank #5 (Strong Sell) and it is the Bear of the Day today.  Let's take a look at why this stock fell to the lowest Zacks Rank.

Description

Philadelphia, PA-based Carpenter Technology Corporation is a producer and distributor of premium specialty alloys, including titanium alloys, powder metals, stainless steels, alloy steels, and tool steels as well as drilling tools. The company’s provides solutions for critical applications across diversified end-use markets - Aerospace and Defense (accounting for around 54% of the company’s revenues), Energy (8%), Transportation (7%), Medical (9%), Industrial and Consumer (14%) and Distribution (6%).

Recent Earnings

After posting three straight beats of the Zacks Consensus Estiamte, CRS missed on its more recent report.  The company reported EPS of $0.85 when $0.89 was expected.  The four cent miss translates to a negative earnings surprise of 4.5%.

The focus now shifts to the next earnings report.

Estimate Movement

Following the miss, estimates have been falling.

The current quarter has actually seen the consensus increase by a penny over the last 60 days, but the most recently updated contribution was at $0.83 when the consensus is at $0.87.  That most recent update is the driver behind the Zacks ESP.

The next quarter has estimates dropping from $1.06 to $1.02.

The fiscal year 2020 has estimates down from $3.92 to $3.83 and the following year has seen a similar reduction in earnings estimates. Adjustments to analyst models have resulted in the consensus moving from $4.33 to $3.75.

When estimates move lower, the Zacks Rank follows suit.  Often times, we see stock prices move in lock step with earnings estimates.

Valuation

A forward PE of 12x is attractive to some investors, but the 2.2% topline growth rate might be the reason for the lower earnings multiple.  The Price to Book multiple of 1.4x is pretty low but so is the Price to Sales multiple of 0.92x.  A low book value is good, but a price to sales of less than one tells me that the market does not value incremental sales... and that isn't something that excites me or a lot of other investors.

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