Crane's Operational Performance Deserves a Premium Multiple; Stifel Upgrades

There are several reasons to be positive on industrial products company Crane Co. CR, according to an analyst at Stifel.

The Analyst

Stifel's Nathan Jones upgraded Crane from Hold to Buy, and increased his price target from $99 to $113.

The Thesis

Crane's emerging track record, earnings growth profile, and cash generation deserve a premium valuation, Jones said in a note. The analyst is impressed with the company's operational performance, strategic and disciplined capital allocation, market judgement and its pivot to growth.

The company's decision to invest part of tax savings over the next two years to reinvigorate organic growth is reflection of its confidence in success, the analyst said. He expects these investments to bear fruit only after 2-3 years, although believing these would provide a tailwind to earnings growth.

Stifel also said a new restructuring program the company has initiated would add 10 cents to earnings per share in 2018 and at a run rate of 35 cents by 2020. The firm noted that the company envisages $1 accretion from the recently completed Crane Currency acquisition by 2021.

"When we put all the pieces together we forecast EPS growth of 22% (with a bump from tax), 12%, and 14% over the next 3 years on an organic basis while generating close to $700 million of FCF (after dividends) to reload balance sheet for further acquisitions," the firm said.

Price Action

Crane shares are up over 26 percent over the past year.

At time of writing, shares were up 2.5 percent to $99.53.

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