If the Slide Continues, Crane Could Be Compelling (CR)

May.22.06 | About: Crane Co. (CR)

Crane Co. (NYSE:CR) is a conglomerate that does business in the areas of Fluid Handling (approximately 46% of revenue), Aerospace and Electronics (27%), Engineered Materials (15%), Merchandising Systems (8%) and Controls (4%). The company's strategy is to try to grow the earnings within their business segments while working on making operational and strategic links between their various segments.

Since Crane's businesses are within industry niches, the total addressable market [TAM] for any given business is not particularly large, so the company tends to not grow very fast organically. As a result, the company is very aggressive about building shareholder value through acquisitions; since 2001 the company has made 22 acquisitions. Their most recent acquisition was in January when they purchased CashCode Co., a company that specialized in systems for validating banknotes and for storage and recycling in vending, gaming and retail, for $86m. The company has also divested five businesses in the past five years.

There is a lot to like about this stock: a long, solid history as a good business, a 20%+ return on equity, a large portion of their business in a hot industry (Aerospace), nice historical stock performance, they pay a dividend and they beat earnings each of the last four quarters. The public markets, however, haven't exactly missed this one and, even after the sell-off of the last week, they are up 25% since last December. Currently, the stock trades at 15.3x 2006 earnings, which gives them a 1.7x PEG ratio (at a 9% 5-year growth rate). While they are certainly one of the top names in their comparable group, these multiples reflect that.

During the sell-off, the stock broke down from an uptrend it was on from before the beginning of the year. If the stock continues to fall and is able to shed another few points, this could become a more compelling opportunity, but right now I'd hold off on buying.

Bottom Line: HOLD

CR 1-yr Chart