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Crane's (CR) Prospects Bleak on Pandemic-Related Concerns

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Crane Co. (CR - Free Report) seems to have lost its sheen to the coronavirus outbreak, which seems to have adversely impacted its first-quarter results and might continue doing so in the quarters ahead. Also, high debts and forex woes are concerning for the company. Notably, weak price performance and lowered earnings estimates indicate bearish sentiments for the stock.

The company has a market capitalization of $2.1 billion and a Zacks Rank #5 (Strong Sell) at present. It belongs to the Zacks Diversified Operations industry, currently at the bottom 18% (with the rank of 207) of more than 250 Zacks industries.

You can see the complete list of today’s Zacks #1 Rank (Strong Buy) stocks here.

We believe that the industry is suffering from global uncertainties due to the pandemic, unfavorable movements in foreign currencies and strained trade relations due to tariffs. However, pandemic-induced increase in demand for a few products is a boon.

Notably, Crane’s earnings and sales lagged estimates by 6.5% and 3.3%, respectively, in first-quarter 2020. Also, the bottom line declined 20.7% year over year due to weak sales and a fall in margin.

In the past three months, the company’s shares have fallen 18% compared with the industry’s decline of 10.7%.





Factors Affecting Investment Appeal

Pandemic-Related Woes: Crane suffered from the adverse impacts of the pandemic in first-quarter 2020, as is evident from the adverse impact of 15-20 cents per share on earnings. The company expects the pandemic-related uncertainties to continue impacting its operations and end markets.

For 2020, Crane expects adjusted earnings of $3.00-$4.25 per share, reflecting a 40% decrease from $6.02 per share in 2019. Net sales are expected to decline 10-16% year over year to $2,750-$2,950 million. Organic sales will likely fall 17-22% year over year.

For the second quarter, the company predicts adjusted earnings per share of 40-50 cents and net sales of $650-$660 million. These suggest declines from earnings of $1.15 per share and net sales of $797.9 million recorded in the previous quarter.

High Debts: A highly leveraged balance sheet might increase financial obligations and hurt Crane’s profitability. Its long-term debts grew marginally (on a sequential basis) to $842.2 million at the end of the first quarter of 2020. Further, interest expenses in the quarter increased 5% year over year.

We find the company’s ability to repay its financial obligations (and not its debts) more concerning now. Notably, its cash and cash equivalents were just $302.8 million at the first-quarter end. The balance reflected a sequential fall of 23.1%. Free cash flow in the quarter was ($43) million. In addition, the company’s times interest earned weakened sequentially from 4.6x to 4.1x at the end of the first quarter.

It expects free cash flow to decline 31% year over year to $200-$250 million in 2020.

Woes Related to International Presence: Operations in the Middle East, the Americas, Asia, Australia and Europe have exposed the company to geopolitical issues, macroeconomic challenges and unfavorable movements in foreign currencies. Forex woes adversely impacted its sales by $7 million.

For 2020, Crane believes that unfavorable movements in foreign currencies will be a headwind, with adverse impacts of 0.5-1% on sales.

Bottom-Line Estimate Trend: The Zacks Consensus Estimate for Crane’s earnings has moved downward in the past 30 days. The consensus estimate for earnings is currently pegged at 44 cents for second-quarter 2020 and 82 cents for the third quarter, reflecting declines of 59.3% and 31.7% from the 30-day-ago figures.

Further, the consensus estimate at $3.75 per share for 2020 reflects a decline of 28.4% from that stated 30 days ago, while the same is pegged at $4.86 for 2021, suggesting a decline of 25.7% from the 30-day-ago number.

Crane Company Price and Consensus

 

Crane Company Price and Consensus

Crane Company price-consensus-chart | Crane Company Quote

Crane’s Performance Versus Three Peers

The company has underperformed three peers in the past three months. Three such stocks are ITT Inc. (ITT - Free Report) , Honeywell International Inc. (HON - Free Report) and Carlisle Companies Incorporated (CSL - Free Report) , with respective three-month declines of 3.3%, 10.6% and 16.9%.

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