Crane (NYSE: CR) is a high-flying stock, having gained 58% since the IPO spin-off and keeping most of it. A recent downshift in analyst sentiment driven by valuation capped gains in January, presenting a minor headwind, but nothing this industrial growth story can't handle. New highs are likely in the first half of 2024 because it is growing faster than expected, widening margin and prepared to make acquisitions this year.
Crane is an aggressive acquirer with the capital reserves to continue the 2023 trend in 2024. The combination of acquisitions and organic growth provides a revenue and margin lever, making this year's valuation no lasting concern. Because the outlook includes sustained and accelerating growth, the P/E valuation quickly falls from 24X to below 20X, clearing the path to higher price points for the stock.
Crane has a strong quarter, guiding the market higher
Crane is a diversified industrial components manufacturer exposed to aerospace, defense, process flow and general industrial needs. It produced $533 million in net revenue in Q4 for a reported decline of nearly 35% due to the separation from Crane NXT (NYSE: CXT) last year.
However, the ongoing business grew 9.7%, including recent acquisitions that have not fully impacted results. The core, ongoing business ex-acquisitions grew by 5% to help produce 230 basis points of outperformance relative to the Marketbeat.com analyst consensus estimate. Segmentally, Aerospace grew strongest at 17%, led by commercial demand. Process Flow grew 8%, while Engineered Materials fell 7%.
Margin news is good, with the gross and operating margin widening on a reported and adjusted basis. The company's core and adjusted core operating profit increased by 38% and 14% to beat the analysts' consensus. The adjusted $0.90 outpaced the consensus figure by $0.07 or 850 basis points, with additional margin improvement expected this year.
The guidance is a primary driver for this company and is backed up by a record backlog at the end of Q4. Execs issued cautious guidance stating they are confident of producing the 10% EPS growth and see upside potential as the year progresses. The $4.55 to $4.85 range has a midpoint of $4.70, which is $0.50 or 12% above market expectations, and there may be more acquisitions this year to accelerate the growth.
Crane is ready to swoop in on its next acquisition
Crane Company did not mention its next acquisition target, only that it is ready to move when the time is right. Cash flow and FCF from ops are robust and left the company in solid shape at year-end despite the two acquisitions in 2023. The cash balance is down YOY, but the balance is sufficient, and the balance sheet is still net cash with leverage of 0.1X EBITDA and ample free cash flow expected this year. The takeaway is that Crane Company is robustly positioned to make whatever move it deems appropriate and pays dividends.
The Crane Company dividend is not large but is reliably safe and expected to grow. The 0.5% yield is less than 20% of the earnings, and earnings are projected to grow for at least the next two years, so there is room in the numbers. The company issued a 14% distribution increase with its Q4 report, setting the stage for another increase in 2025.
The technical outlook: Crane uptrend is intact
The Crane Company is in an uptrend, and the uptrend is intact. The recent pullback is part of a healthy consolidation, and support is already evident near $110 and likely to hold, given the guidance and outlook. Because the stock price is rebounding following the Q4 report, it is likely to continue higher rather than retest the recent lows. The critical resistance is the 150-day EMA at $114; a move above there would be bullish and lead the market to retest the recent highs. If not, CR price action may fall back to support near $110, but lower lows are not expected.
