An interesting industrial manufacturer that investors should pay attention to is Crane Holdings Co (NYSE: CR). Although the company has been through a tough time in recent years, recent performance has been promising. The company generates a significant amount of cash flow and the stocks are starting to look quite attractive from a valuation perspective. As long as current trends persist, I believe the company offers upside potential for value investors going forward.
More attractive now
Operationally, Crane Holdings focuses on a diversified portfolio of businesses. This includes the production of components and systems for the commercial aerospace, military aerospace, defense and space markets. The company also produces high-tech products for payment acceptance and distribution, banknotes and technical security devices for banknotes, fiberglass reinforced plastic panels and reels that are widely used in the production of recreational vehicles, as well as commercial and industrial construction applications, and much more. . Of course, if you follow my writings, you probably already know a lot more about the craft. I say this because it’s not the first time I’ve written about it. In a previous article, published in January this year, I dug into the company’s business model. In this article, I detailed the difficult period the company had experienced over the past few years, while acknowledging that recent financial performance was encouraging. Despite this change the company was going through, I felt the shares were not trading at levels that were so attractive. And because of that, I ended up rating the company as a ‘catch’.
Since the publication of this article, two big things have happened. First, while the value of the S&P fell 4.8%, shares of Crane Holdings fell a more modest 2.4%. Second, and significantly related to the first element, the company’s fundamental performance has continued to improve. Consider, for example, financial performance covering the company’s entire 2021 fiscal year. Revenue for this period was $3.18 billion. While that’s still below the $3.28 billion it generated in 2019, it’s an 8.3% improvement from the $2.94 billion the company reported for 2020. Other financial performance data were also strong. Net income of $435.4 million eclipsed the $181 million generated in 2020. Operating cash flow was also strong, totaling $466.7 million. This compares favorably to the $309.5 million reported for 2020. Even if we adjust for changes in working capital, it would have fallen from $246.3 million in 2020 to $437 million last year. And finally, we have EBITDA. This measure totaled $629.4 million last year. That’s 37.5% more than the $457.9 million seen in 2020. It’s also slightly higher than the $616.8 million the company announced in 2019.
The company’s success was driven by a number of factors. Although the company benefited $70.6 million from currency fluctuations and $5 million from acquisitions, most of the company’s 2020 sales increase to 2021 was due to increased base sales. The 21.8% increase in revenue associated with the company’s Payment & Merchandising Technologies segment, followed by the 19% increase in revenue associated with Process Flow Technologies, was particularly positive. Both of these segments also saw their profit margins increase significantly, with the former recording a 206.9% improvement in operating profit, with much of this increase attributable to the absence of the $229 million asbestos provision. dollars the company reported for 2020.
Business growth continued in fiscal 2022. Revenue of $801.1 million for the first quarter of the year was 2.8% higher than $779.6 million. dollars announced by the company a year earlier. However, not all metrics have improved year over year. Net income fell slightly from $108.4 million to $105 million. Cash flow from operations also decreased from a positive $47.6 million to a negative $49.3 million. However, if we correct for changes in working capital, cash flow from operations would have decreased from $99.1 million to $117.8 million. And over the same period, EBITDA went from $163.7 million to $168.1 million.
It should also be noted that Crane Holdings has experienced some disruption since I last wrote about it. To start, in my previous article, I mentioned how the company was about to sell its engineered materials segment for $360 million. Due to regulatory considerations, this deal was ultimately scrapped. Meanwhile, the company reached an agreement to divest its Crane Supply business for what currently translates to $302.3 million. Unfortunately, we don’t really know what impact this will have on the business. But we know that for fiscal 2022, management anticipates adjusted earnings per share of between $7.45 and $7.85. Halfway through, that would translate to net profits of $428.8 million. This is only slightly lower than what the company achieved last year. If we assume other measures of profitability will work the same way, cash flow from operations should be around $459.6 million, while EBITDA should be around $619.9 million. dollars.
Using this data, we can effectively assess the business. Using our 2021 results, the company is trading at a price/earnings multiple of 12.3. The price/operating cash flow multiple is expected to be 11.5, while the EV/EBITDA multiple is expected to be 9.5. If we use the 2022 estimates, these multiples increase to 12.5, 11.7 and 9.7 respectively. Between generating stronger-than-expected financial results and lowering its share price, the 2021 calculations for the company are favorable compared to what they were estimated when I last wrote about the company. At that time, I calculated these multiples as 16.4, 15, and 10.2, respectively. To put the price of the company into perspective, I also decided to compare it to five similar companies. On a price-earnings basis, these companies ranged from a low of 5.6 to a high of 51.5. And on an EV/EBITDA basis, the range was 3.7 to 21.7. In both cases, two of the five companies were cheaper than our prospect. Meanwhile, using the price/operating cash flow approach, multiples ranged from 8 to 300.9. In this case, only one of the five companies was cheaper than Crane Co.
|Company||Prizes / Earnings||Price / Operating Cash||EV / EBITDA|
|Crane Holdings Co.||12.3||11.5||9.5|
|Mueller Industries (MLI)||5.6||8.0||3.7|
|EnPro Industries (NPO)||11.7||13.5||9.1|
|Franklin Electric Co (FELE)||23.3||57.1||14.9|
|Standex International (SXI)||18.6||14.4||9.8|
Based on all the data provided, it seems to me that Crane Holdings’ situation is improving considerably. Although financial performance on the bottom line may be slightly weaker this year than it was last year, the company is still doing quite well and shares are now trading at a level that investors should consider attractive. For this reason, I have decided to raise my rating on the company from a “hold” designation to a “buy” designation.