Crane Is Well Positioned to Drive Revenue Growth and Margin Expansion

We are raising our fair value estimate for narrow-moat-rated Crane CR to $130 from $126 following the firm’s investor day on March 9. Our fair value increase reflects our slightly more optimistic long-term revenue growth and operating margin assumptions as well as time value of money.

Following the spinoff of Crane NXT on April 3, Crane will retain two core segments, aerospace & electronics and process flow technologies, as well as the engineered materials business. On a pro forma basis, management expects Crane to deliver full-year 2023 core revenue growth of 3%-5% (including 10% core growth in aerospace & electronics, 4% core growth in process flow technologies, and a 15% core decline in engineered materials), a roughly 80-basis-point year-over-year segment operating margin expansion (from 16.6% to 17.4%), and adjusted EPS of $3.40-$3.70.

Management also reiterated its long-term target of delivering 4%-6% average core sales growth, driven by 7%-9% growth in aerospace & electronics and 3%-5% growth in process flow technologies. We believe that aerospace & electronics is poised to capitalize on a continued cyclical recovery in commercial aerospace, as the end market remains below pre-COVID-19 peak levels. We also think that process flow technologies will benefit from new product introductions as well as a portfolio shift toward higher-growth end markets, including pharma, wastewater, and industrial automation.

Following the separation, Crane’s net leverage ratio will be roughly 0.5 times pro forma EBITDA, positioning the firm well to continue investing in organic and inorganic growth opportunities. We expect Crane’s capital allocation to focus primarily on M&A to grow the aerospace & electronics and process flow technologies platforms. Management’s long-term vision includes reaching around $4 billion in sales and mid-20s segment EBITDA margins in 2028, compared with around $1.8 billion in sales and a roughly 20.5% segment EBITDA margin expected in 2023.