Boeing Ramp-Up And Technological Advancements Will Unlock Future Markets

Key Takeaways

• Crane is set for growth in Aerospace & Electronics due to Boeing's ramp-up and defense spending, boosting revenue and profit margins.
  
• Investment in technology and innovation in Sensing and Power Systems enhances competitive differentiation and long-term revenue growth.
  
• Economic uncertainty and external policy decisions could lead to revenue impacts, while inflation, tariffs, and geopolitical risks present cost and supply chain challenges.

Catalysts

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

• Crane is strategically positioned for strong growth in its Aerospace & Electronics segment, with anticipated core sales growth of mid
• to high single digits driven by Boeing's production ramp-up and solid defense procurement spending. This is likely to impact both revenue growth and profit margins positively over the coming years.
  
• The Process Flow Technologies segment is well-positioned in higher growth end markets, such as water and wastewater, cryogenics, and industrial automation, which can sustain revenue growth through economic cycles and potentially enhance operating margins.
  
• Crane's investment in technological innovations and new product developments, particularly in the Sensing and Power Systems and cryogenics, is expected to drive long-term revenue growth and improve competitive differentiation, impacting both top-line growth and net margins.
  
• The strong balance sheet and substantial capacity for mergers and acquisitions (M&A), with at least $1.5 billion available, provide opportunities for strategic growth and scale expansion, which could significantly enhance earnings per share (EPS) through new business integration and synergies.
  
• Crane's emphasis on operational execution, commercial excellence, and strategic pricing initiatives positions it to effectively manage costs and pricing power in an inflationary environment, thereby protecting or improving net margins and overall profitability.

Crane Future Earnings and Revenue Growth

Assumptions

• Analysts are assuming Crane's revenue will grow by 6.2% annually over the next 3 years.
• Analysts assume that profit margins will increase from 13.2% today to 16.4% in 3 years time.
• Analysts expect earnings to reach $427.3 million (and earnings per share of $7.3) by about May 2028, up from $287.7 million today.
• In order for the above numbers to justify the analysts price target, the company would need to trade at a PE ratio of 30.0x on those 2028 earnings, down from 33.3x today. This future PE is greater than the current PE for the US Machinery industry at 21.6x.
• Analysts expect the number of shares outstanding to grow by 0.6% per year for the next 3 years.
• To value all of this in today's terms, we will use a discount rate of 7.22%, as per the Simply Wall St company report.

Crane Future Earnings Per Share Growth

Risks

• Economic uncertainty and policy decisions outside of Crane's control could lead to unexpected changes in the demand environment, which would impact revenues and potentially lead to missed earnings guidance.
  
• Current inflationary pressures and the evolving demand and supply chain environment may challenge price-setting abilities and increase costs, possibly squeezing net margins.
  
• Tariff impacts on imports, particularly from China and other regions, could raise costs of goods sold. Though mitigations are planned, any shortfall in offset measures would affect net earnings.
  
• China and other geopolitical risks, including potential retaliatory trade actions, might disrupt supply chains or affect sales in key markets, impacting overall revenue growth.
  
• Competition and overreliance on defense and aerospace markets implies risk if there is reduced government spending or program changes, which would negatively influence future revenues.

Valuation

• The analysts have a consensus price target of $179.357 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 $150.0.
• 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 $427.3 million, and it would be trading on a PE ratio of 30.0x, assuming you use a discount rate of 7.2%.
• Given the current share price of $166.47, the analyst price target of $179.36 is 7.2% higher. 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.