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Carpenter Tech (CRS) Bulls See Upside as Metals Demand for EVs, Med-Tech Rises

by | Mar 31, 2021

Carpenter Tech (CRS) small-cap that drew unusual call buying on 3/30 with more than 1,325 June $45 calls bought up to $3.30, running 55X average. CRS doesn’t have any other notable open interest. Shares have been in a strong trend and pulling back to the 50-day MA which has held up well. CRS also held the February breakout and move back to new highs targets $55-$60. The $1.76B company trades 1X sales and 6.5X cash with a 2% yield. They are guiding to 17% revenue growth in FY22. CRS manufactures and fabricates specialty metals in two different businesses: specialty alloys and performance engineered products. They are a critical partner to OEMs and first-tier suppliers to the aerospace, transportation, industrial and energy markets. They also have exposure to additive manufacturing. Their biggest market is aerospace with 54% of all sales while industrial is 17%, both big buyers of advanced alloy-based solutions and materials like titanium, nickel, and cobalt. Their content within engines is growing and area where most of their materials go into as they can withstand higher temperatures and pressure than traditional metals. CRS is benefitting from higher demand from advanced material use in EVs as well as the content-level of soft magnetic content is rising. Med-tech is a big opportunity with specialty metals like titanium and cobalt being used in everything from cardiology equipment, orthopedics, surgical instruments, and other diagnostics tools. They noted in February:

“States are beginning to lift restrictions on elective surgeries, spurring a restocking actions that will continue over the coming quarters at both end-user OEM customers as well as distributors supporting the medical device market. These restocking efforts have more impact on elective surgery applications such as orthopedic and dental as opposed to the more nonelective cardiology segment, which has been more resilient.”

Hedge fund ownership fell 3% in Q4. Insiders were very active in 2020. Analysts have an average target for shares of $30 but limited coverage.