Expansion Into Space Launch And Semiconductor Cryogenics Will Open New High-Profit Markets

Key Takeaways

• Divesting Engineered Materials enables a strategic focus on Aerospace & Electronics and Process Flow Technologies, enhancing revenue growth and margins.
  
• Strategic acquisitions in high-growth markets and F-16 program ramp-up are set to boost revenue and earnings.
  
• Uncertainty in industrial demand, geopolitical risks, and dependency on military contracts pose significant threats to Crane’s revenue and profit margins.

Catalysts

Manufactures and sells engineered industrial products in the United States, Canada, the United Kingdom, Continental Europe, and internationally.

• The divestiture of the Engineered Materials segment allows Crane to focus resources on its two strategic growth platforms, Aerospace & Electronics and Process Flow Technologies, enhancing the potential for higher revenue growth and better net margins.
  
• Crane's strong balance sheet and active M&A pipeline position the company for strategic acquisitions in 2025, which could drive earnings growth through inorganic expansion and additional revenue streams.
  
• The ramp-up of the F-16 brake control upgrade program, with a $150 million to $200 million sales potential, starting in 2026, should significantly boost future revenue and earnings.
  
• Expansion in high-growth markets, like space launch and semiconductor cryogenics, through acquisitions such as CryoWorks and Technifab, is expected to increase revenue and improve net margins by entering segments with higher profitability.
  
• Crane's ongoing transformation into higher-margin end markets within Process Flow Technologies suggests continued margin expansion and significant earnings growth due to structural shifts in product and market focus.

Crane Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Crane's revenue will grow by 6.5% annually over the next 3 years.
• Analysts assume that profit margins will increase from 12.6% today to 16.4% in 3 years time.
• Analysts expect earnings to reach $420.9 million (and earnings per share of $7.28) by about January 2028, up from $268.2 million today. The analysts are largely in agreement about this estimate.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 28.8x on those 2028 earnings, down from 37.5x today. This future PE is greater than the current PE for the US Machinery industry at 23.3x.
• Analysts expect the number of shares outstanding to grow by 0.32% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 6.83%, as per the Simply Wall St company report.

Crane Future Earnings Per Share Growth

Risks

• The uncertainty in industrial demand signals and mixed economic indicators present a risk to revenue growth, particularly affecting Crane’s Process Flow Technologies segment.
  
• Potential challenges in the recovery of the Marion, North Carolina facility due to Hurricane Helene could impact production rates and future earnings if the recovery does not remain ahead of schedule.
  
• Exposure to geopolitical risks, such as potential tariffs and retaliation in China, may impact revenue and profit margins for the Process Flow Technologies segment.
  
• Dependency on military contracts like the F-16 brake control upgrade program presents a concentration risk that could affect revenue if defense budgets or procurement plans change.
  
• The gradual ramp-up of commercial aerospace demand, including the Boeing MAX production, poses a risk if market conditions or production schedules do not align with current expectations, potentially impacting earnings.

Valuation

• The analysts have a consensus price target of $174.71 for Crane based on their expectations of its future earnings growth, profit margins and other risk factors. However, there is a degree of disagreement amongst analysts, with the most bullish reporting a price target of $200.0, and the most bearish reporting a price target of just $152.0.
  
• In order for you to agree with the analyst's consensus, you'd need to believe that by 2028, revenues will be $2.6 billion, earnings will come to $420.9 million, and it would be trading on a PE ratio of 28.8x, assuming you use a discount rate of 6.8%.
  
• Given the current share price of $175.81, the analyst's price target of $174.71 is 0.6% lower. The relatively low difference between the current share price and the analyst consensus price target indicates that they believe on average, the company is fairly priced.
  
• We always encourage you to reach your own conclusions though. So sense check these analyst numbers against your own assumptions and expectations based on your understanding of the business and what you believe is probable.