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A Deep Discount on This Narrow-Moat Metals Stock

Low oil prices may weigh on Carpenter's energy-industry shipments but are unlikely to disrupt its sticky aerospace business.

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Andrew Lane: For Carpenter Technology (CRS), we think concern about the impact of low oil prices provides an attractive entry point to a compelling secular-growth story. Carpenter is a manufacturer of specialty metals with considerable exposure to the commercial aerospace end market. Its portfolio of high-value alloys, stainless steels, and titanium products provides the benefits of lightweighting and strength as well as resistance to heat and corrosion.

As the composition of the commercial-aircraft fleet moves toward a higher proportion of very large, next-generation models, the average shipset content of Carpenter's high-value materials will increase. This should allow the company's sales growth to far outpace the 3% to 4% annual commercial-aircraft delivery growth that we forecast through the end of the decade. Due to a more favorable product mix and the benefits of operating leverage as production volumes rise, we expect operating margins to expand from 8% to roughly 14% in a midcycle environment.

Andrew Lane does not own shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.

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