Coronavirus Clips Crane's Wings, but Sell-Off Is Overdone
We think the shares trade with an adequate margin of safety for long-term investors.
Crane (CR) owns a portfolio of moaty businesses that tend to be leaders in their niche markets, typically holding a number-one or -two share. It makes a wide range of products, including valves, banknote validators, and aerospace components, but a common thread across its portfolio is that Crane manufactures highly engineered products that often perform mission-critical functions. Crane has consistently generated solid returns on invested capital, averaging around 14% over the past 10 years, and we think the company is well positioned to continue outearning its cost of capital thanks to its narrow economic moat. Although the coronavirus outbreak will make 2020 a tough year for Crane, the company remains on solid financial footing.
We think Crane has built a moat around its business based primarily on intangible assets, including its engineering prowess and reputation for quality and reliability. Furthermore, we believe that Crane benefits from customer switching costs associated with its large installed base of equipment. For instance, its brake control systems have been used in all of Boeing’s commercial aircraft that are currently in operation, and Crane enjoys an entrenched position with other key original equipment manufacturers. In the payment and merchandising technologies segment, recently acquired Crane Currency has strong relationships with over 50 mints and treasuries; the business has supplied currency paper to the U.S. Treasury for more than a century. Lastly, the fluid handling business benefits from its large installed base because customers tend to be risk-averse and often replace products like for like.
Krzysztof Smalec does not own (actual or beneficial) shares in any of the securities mentioned above. Find out about Morningstar’s editorial policies.
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