Self-Help And Stronger End-Markets A Powerful Combo For Materion

Jun. 07, 2018 10:38 AM ETMaterion Corporation (MTRN)
Stephen Simpson profile picture
Stephen Simpson


  • Materion has benefited from robust demand in key markets like consumer electronics and industrial products, while new product introductions have done their part as well.
  • Ongoing margin improvement remains a key management goal.
  • Materion's valuation already factors in a lot of good news.

Most specialty alloy companies have enjoyed a good run over the past year, and Materion (NYSE:MTRN) has certainly been among them with a 40%-plus move since my last update on the company. Not only has aerospace demand come to life, but Materion has also seen stronger momentum from its industrial and consumer electronics customers. Making things even better, the company’s cost-reduction/efficiency moves seem to already be paying dividends, and the company’s efforts to expand its new product contributions appear to be ahead of schedule.

Materion has done better than I’d expected it would last summer, but the valuation gives me some pause. I’m not surprised that the shares look pricy in DCF terms, but the EBITDA-based valuation is a little more limiting to my enthusiasm. Materion trades at around 12x forward EBITDA and I’d be reluctant to pay much more than that (frankly, I’d be reluctant to pay that much). Strong end-markets and ongoing margin improvement can still drive higher estimates, but the multiples already look pretty fair.

A Strong Core, With Good Contributions From New Products

Although the segment-level contributions move around from quarter to quarter, all in all I would say that Materion has been posted strong core growth. Revenue was up 14% in the first quarter on an organic basis (led by 27% growth in Performance Alloys) after a similar result in the fourth quarter of 2017. The Precision Coatings business has been lackluster (up 1% in the first quarter and up 4% in the fourth quarter), hurt in part by weaker diabetes testing strip demand.

New products made up about 17% of Materion’s first quarter value-added revenue and the company is on pace to reach its 20%-plus target. Along similar lines, Materion has continued to find success growing its ToughMet business – ToughMet alloys are high-strength copper/nickel/tin alloys that don’t contain

This article was written by

Stephen Simpson profile picture
Stephen Simpson is a freelance financial writer and investor. Spent close to 15 years on the Street (sell-side, buy-side, equities, bonds); now a semi-retired raccoon rancher. That last part isn't entirely true. Probably.

Disclosure: I/we have no positions in any stocks mentioned, and no plans to initiate any positions within the next 72 hours. I wrote this article myself, and it expresses my own opinions. I am not receiving compensation for it (other than from Seeking Alpha). I have no business relationship with any company whose stock is mentioned in this article.

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