Key points
- Crane stock reported earnings in the first quarter of 2024, showing investors why it could be one of the best stocks in the industry.
- With rising price targets and a push in management guidance, the odds are in favor of investors looking to beat the market this year.
- Shares rose more than 6.3% after the announcement, hitting a new 52-week high.
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The first quarter of the 2024 earnings season has begun. This quarter is generally believed to give investors the first boost to the economy for the rest of the year. It may also be the manufacturing sector’s time to shine. After reporting its quarterly earnings, shares of Crane NYSE: CR they rose more than 6.3% for the April 23 trading session.
Crane is looking to ride the rest of the wave in industrial stocks this year. After all, he outperformed the SPDR fund for selected industrial sectors NYSEARCA: XLI by as much as 65% in the last 12 months.
Considering that the industrials sector has also outperformed the broader S&P 500 index by 5% over the past six months, Crane stock could be the best-performing stock in one of the best-performing sectors. Besides price action, there are a few other reasons why Crane stock is becoming a Wall Street favorite today.
Not your father’s bull market
In past years, the bull market in U.S. stocks has tended to be more inclusive, boosting the manufacturing and business services sectors. This time, the COVID-19 pandemic has caused serious economic disruption.
Because the Federal Reserve (Fed) needed to lower interest rates to near zero to combat a stagnant economy, the two areas of the economy began to behave in opposite ways. Investors can see this divergence live by tracking the ISM Manufacturing PMI versus the ISM Services PMI.
However, after more than a year of contraction, the manufacturing sector is starting to take off. Analysts at The Goldman Sachs Group Inc. NYSE:GS they expressed this shift in their 2024 macroeconomic outlook report a few months ago, and so far they are right.
On the other hand, services slowed their pace of expansion last quarter, a sign that times are changing. With actions like Netflix Inc. NASDAQ: NFLX with a sell-off of as much as 15% after reporting first-quarter 2024 earnings, unlike Crane’s near double-digit rally, investors can see this divergence in play.
This divergence stems from the Fed’s proposed interest rate cuts for 2024, which could weaken the dollar, making American exports more attractive to foreign buyers.
The February manufacturing PMI showed a 6.4% increase in export orders for the United States, confirming this thesis so far. The macro picture is defined, but why choose Crane football?
It is one of Wall Street’s favorites so far
Two factors typically drive stock prices: earnings growth and the markets’ perception of these earnings projections. Compared to the industrial sector’s expected 10% earnings per share (EPS) growth, Crane’s 8.9% might be a conservative bet.
There must be a reason why markets value this stock at a 50.6% premium over its aerospace and defense competitor Lockheed Martin Co. New York Stock Exchange: LMT. Based on the price-to-earnings (P/E) ratio, Crane’s 24.5x multiple shows the market’s willingness to pay compared to Lockheed’s 16.3x valuation.
Lockheed stock analysts believe the company will grow its EPS by 8% this year, on par with Crane’s. Despite being the smaller company, with a market capitalization of just $7.8 billion compared to Lockheed’s $111 billion, Wall Street analysts believe the two could achieve the same growth rate.
Now, for the reason behind Wall Street’s willingness to pay. It appears it’s all about future sales and sales quality for Crane, as markets specifically pay a 125% premium for its sales over Lockheed’s. A price-to-sales (P/S) ratio of 3.6x puts Crane’s revenue expectations above Lockheed’s 1.6x
Crane’s First Quarter: Investor Bullseye
(As of 04/25/2024 ET)
- 52 week interval
- $67.28
▼
$145.80
- Dividend yield
- 0.57%
- P/E ratio
- 19.07
- Price target
- $137.00
In the first quarter of its 2024 earnings release, management mentioned the deal Crane signed to acquire CryoWorks. This acquisition is expected to add approximately $28 million in annual sales to the company, which is why the P/S ratio is richer.
Over the year, EPS grew 14.3% before tailwinds from the manufacturing sector and the CryoWorks acquisition. Investors may be wondering whether today’s EPS projections reflect the company’s financial future.
With geopolitical tensions rising, Crane’s exposure to military equipment may interest investors, as management raised its forecast for 2024. Sales growth is now pegged at 10% (previously 8% ) and the EPS forecast was also raised by $0.20.
Raising their price targets to $150 per share from $135, analysts at Stifel Nicolaus now see a net upside of 8.7% for Crane shares. Bank of America Co. NYSE:BAC it also deemed it appropriate to increase its targets from $110 to $140. Wall Street favoritism may go beyond price action this time.
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