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Crane Holdings Fundamental Analysis

Disclaimer: This article by The Globetrotting Investor is general in nature. We aim to bring you long-term focused analysis driven by fundamental data, hence, providing you commentary based on historical data and analyst forecasts only using an unbiased methodology. This is not a buy/ sell recommendation, and it is solely for educational purposes. Please do your research before investing. Note that our analysis may not factor in the latest price-sensitive company announcements or qualitative material. Please read the full disclaimer here.

Crane Holdings

Last Updated: 3 Feb 2023

NYSE: CR

GICS Sector: Industrials

Sub-Industry: Specialty Industrial Machinery

https://www.craneco.com/

Crane Holdings Fundamental Analysis | Crane Holdings Logo | Fundamental Analysis by The Globetrotting Investor

Table of Contents

You can download a summary of Crane Holdings' fundamental analysis in PDF here.

Management

Crane Holdings Management

CEO: Max Mitchell

Tenure: 9 years

Crane Holdings' management team has an average tenure of 3.7 years. It is considered experienced.

Source of Revenue

Crane Holdings Source of Revenue

Crane Holdings Co., together with its subsidiaries, are a diversified manufacturer of highly engineered industrial products. The company sells its products in the Americas, Europe, the Middle East, Asia, and Australia.

 

Crane Holdings has four business segments: Aerospace & Electronics, Process Flow Technologies, Payment & Merchandising Technologies, and Engineered Materials.

 

The company’s primary end markets include process industries (chemical production, oil & gas, power, and general industrial), non-residential and municipal construction, payment automation solutions, banknote design and production, aerospace, defence and space, along with a wide range of general industrial and certain consumer-related end markets.

 

Aerospace & Electronics

The Aerospace & Electronics segment supplies critical components and systems, including original equipment and aftermarket parts, primarily for the commercial aerospace, military aerospace, defence, and space markets.

 

Products include a wide range of custom-designed, highly engineered products used in landing systems, sensing and utility systems, fluid management, seat actuation, power and microelectronic applications, and microwave systems. Examples of brands include Hydro-Aire, ELDEC, Lear Romec, P.L. Porter, and Keltec.

 

Crane Holdings products are sold directly to aircraft manufacturers, commercial Tier 1 integrators (companies which make products specifically for an aircraft manufacturer), defence and space prime contractors, airlines, and government agencies including the U.S. Department of Defence.

 

Process Flow Technologies

The Process Flow Technologies segment is a provider of highly engineered fluid handling equipment for mission-critical applications that require high reliability. The segment is comprised of Process Valves and Related Products, Commercial Valves, and Pumps and Systems.

 

Process Valves and Related Products manufactures on/ off isolation valves, instrumentation and controls, and related products for critical and demanding applications primarily in the chemical and petrochemical, general industrial, energy-related, and pharmaceutical end markets globally. Examples of products sold under the trade names are Crane, Saunders, Jenkins, and Pacific.

 

Commercial Valves is engaged primarily in the manufacturing of valves and related products for the non-residential construction, general industrial, and municipal markets, and the distribution of pipe, valves and fittings (PVF) for the non-residential construction market. Examples of brands include Stockham, Wask, and Crane Supply.

 

Pumps and Systems manufactures pumps and related products for water and wastewater applications in the industrial, municipal, commercial, and military markets, primarily in the United States. Products sold under the trade names are Deming, Weinman, Burks and Barnes.

Crane Holdings Fundamental Analysis | Crane Holdings | Fundamental Analysis by The Globetrotting Investor

Source: Crane Currency

 

Payment & Merchandising Technologies

The Payment & Merchandising Technologies segment consists of Crane Payment Innovations (CPI) and Crane Currency.

 

CPI provides high-technology payment acceptance and dispensing products to original equipment manufacturers, and for certain vertical markets, it also provides currency handling and processing systems, complete cash and cashless payment and merchandising solutions, equipment service solutions, and fully-connected managed service solutions.

 

Crane Currency is a supplier of banknotes and highly engineered banknote security features as well as a provider of security features for product authentication. A pioneer in advanced micro-optics technology, Crane Currency provides a wide range of engaging visual effects in features that increase the level of security and public trust in banknotes and for the product brand authentication market. Crane Currency offers uniquely designed banknotes, substrate (paper) and printing capabilities for over 50 central banks around the world.

 

Engineered Materials

The Engineered Materials segment manufactures fibreglass-reinforced plastic panels and coils, primarily for use in the manufacturing of recreational vehicles, and in commercial and industrial building applications, with some additional applications including trailers and other transportation-related products.

 

On May 16, 2021, Crane Holdings agreed to sell the Engineered Materials segment to Grupo Verzatec S.A. de C.V. As a result, the related assets, liabilities, and operating results of Engineered Materials are presented as discontinued operations and, as such, have been excluded from both continuing operations and segment results for all periods presented.

Crane Holdings Fundamental Analysis | Crane Holdings Reportable Segment Revenue FY2022 | Fundamental Analysis by The Globetrotting Investor

Crane Holdings Reportable Segment Revenue FY2022

Crane Holdings Fundamental Analysis | Crane Holdings Revenue by Geographic FY2022 | Fundamental Analysis by The Globetrotting Investor

Crane Holdings Revenue by Geographic FY2022

Crane Holdings Economic Moat

Crane Holdings Economic Moat
Crane Holdings Fundamental Analysis | Crane Holdings Economic Moat | Fundamental Analysis by The Globetrotting Investor

Crane Holdings Economic Moat

Economic Moat: Narrow

There are many ways to identify Crane Holdings’ economic moat, but I focus on the above 5 types. The rating is purely subjective and based on my in-depth understanding and analysis of Crane Holdings. Please check my summary to understand more about the economic moat.

Performance Checklist

Crane Holdings Performance Checklist

Is Crane Holdings’ revenue growing YoY for the past 5 years consistently? Inconsistent.

Is the net income growing YoY for the past 5 years consistently? Inconsistent.

Is the cash flow from operating activities growing YoY for the past 5 years consistently? Inconsistent.

Is the free cash flow positive for the past 5 years? No.

Is the gross margin % consistent/ growing for the past 5 years? Yes.

Is the EPS growing for the past 5 years? Inconsistent.

Crane Holdings Fundamental Analysis | Crane Holdings Revenue, Net Income, Operating Cash Flow, and FCF | Fundamental Analysis by The Globetrotting Investor

Crane Holdings Revenue, Net Income, Operating Cash Flow, and FCF (USD Million)

Is the free cash flow per share growing for the past 5 years? Inconsistent.

Crane Holdings Fundamental Analysis | Crane Holdings FCF per Share | Fundamental Analysis by The Globetrotting Investor

Crane Holdings FCF per Share

Management Effectiveness

Is Crane Holdings’s ROE consistently at 12%-15% YoY for the past 5 years? Inconsistent.

Crane Holdings Management Effectiveness
Crane Holdings Fundamental Analysis | Crane Holdings Return on Equity | Fundamental Analysis by The Globetrotting Investor

Crane Holdings Return on Equity

 

Is the ROIC consistently at 12%-15% YoY for the past 5 years? Inconsistent.

Crane Holdings Fundamental Analysis | Crane Holdings Return on Invested Capital vs Weighted Average Cost of Capital | Fundamental Analysis by The Globetrotting Investor

Crane Holdings Return on Invested Capital vs Weighted Average Cost of Capital

 

The trendline for the number of shares outstanding is declining, which is something that an investor would be pleased to see.

Crane Holdings Fundamental Analysis | Crane Holdings Shares Outstanding | Fundamental Analysis by The Globetrotting Investor

Crane Holdings Shares Outstanding (Million Shares)

Crane Holdings Financial Health

Crane Holdings Financial Health
Crane Holdings Fundamental Analysis | Crane Holdings Financial Health | Fundamental Analysis by The Globetrotting Investor

Crane Holdings Financial Health (USD Million)

 

Current Ratio: 1.2 (barely pass my requirement of >1.0)

Debt-to-EBITA: 1.7 (pass my requirement of <3.0)

Interest Coverage: 9.9 (pass my requirement of >3.0)

Debt Servicing Ratio: Unable to calculate due to the company negative operating cash flow

Dividend

Current Dividend yield: 1.59%

Have the dividend payments been stable for the past 5 years? Yes.

Have the dividend payments been growing for the past 5 years? Yes.

Crane Holdings’ dividend payments are reasonably covered by its earnings but not its cash flows.

Crane Holdings Dividend

Crane Holdings Stock Performance

The following chart compares the total stockholder returns (stock price increase plus reinvested dividends) on Crane Holdings common stock from December 31, 2016, through December 31, 2021, with the total stockholder returns for the S&P 500 Index and the S&P Mid Cap Capital Goods Index. The graph assumes that the value of the investment in the common stock and each index was $100 on December 31, 2016, and that all dividends were reinvested.

Crane Holdings Stock Performance
Crane Holdings Fundamental Analysis | Crane Holdings Stock Performance | Fundamental Analysis by The Globetrotting Investor

Crane Holdings Stock Performance

Crane Holdings Valuation

Estimated intrinsic value: $91.36

Value is calculated using discounted cash flow method (taking into account their cash and debt) and scenario planning.

Average free cash flow used: USD$350M

Projected growth rate: 8% - 9%

Beta: 1.52

Discount rate: 10.0%

Date of calculation: 30 Jan 2023

Crane Holdings Valuation
Crane Holdings Fundamental Analysis | Crane Holdings Intrinsic Value | Fundamental Analysis by The Globetrotting Investor

Free cash flow used is a weighted average that is rounded to the nearest tens. In some instances, I used a more realistic number to represent the free cash flow.

 

Total debt and cash and short-term investments are last quarter figures that are rounded to the nearest tens. In some instances, I used more realistic numbers to represent them.

Crane Holdings Fundamental Analysis | Crane Holdings EV-to-EBITA vs its peers | Fundamental Analysis by The Globetrotting Investor

Crane Holdings EV-to-EBITA vs its peers

Crane Holdings Fundamental Analysis | Crane Holdings Price-Earnings Ratio vs its peers | Fundamental Analysis by The Globetrotting Investor

Crane Holdings Price-Earnings Ratio vs its peers

Crane Holdings Fundamental Analysis | Crane Holdings Historical Price-Earnings Ratio | Fundamental Analysis by The Globetrotting Investor

Crane Holdings Historical Price-Earnings Ratio

Additional Resources

I recommend reading The Five Rules for Successful Stock Investing as it greatly helps in my stock analysis. If you want a complete collection of recommended books, please visit here.

My Top Concern

Demand for Crane Holdings products is variable and subject to factors beyond the company’s control, which could result in unanticipated events significantly impacting its business. In addition, a substantial portion of the company sales is concentrated in industries that are cyclical in nature or subject to market conditions which may cause customer demand for its products to be volatile.

 

For example, the Aerospace & Electronics segment faces risks from a decline in air travel demand, reduced orders for aircraft, and decreased purchases of repair parts by airlines. The segment may also be impacted if major aircraft customers face production issues or if manufacturers are faced with pricing pressure, which can result in reduced sales and operating profit. Additionally, demand for military and defence products is dependent on government spending, which can vary from year to year.

 

Similarly, the Payment & Merchandising Technologies segment of the business is dependent on the level of capital expenditures made by customers, which is in turn influenced by the overall economic conditions, availability of credit, and demand expectations. Timing and size of contract awards by central banks, particularly the U.S. government, also add significant variability to the segment's results.

 

I have concerns relating to this segment as well. The Payment & Merchandising Technologies segment is vulnerable to challenges related to product development and marketing. Delays, inability to meet performance goals or successful counterfeiting of security products can negatively impact future sales. Additionally, the business is exposed to changes in government regulations, including those related to compliance with requirements for government contracts. Failure to comply with these regulations can result in penalties, fines, disruptions to the business, and damage to the company's reputation. Advances in payment processing technologies can also impact the segment business. In the future, there may be a shift away from cash that could threaten to disrupt the business.

My Top Concern

Summary for Crane Holdings

Summary for Crane Holdings

Crane Holdings is a company that owns several businesses in niche markets, and its portfolio includes companies that are often market leaders. They make a variety of products, including valves, banknote validators, and aerospace components, all of which are highly engineered and perform mission-critical functions.

 

There are three business segments: Aerospace & Electronics, Process Flow Technologies, and Payment & Merchandising Technologies. We will explore each segment’s economic moat.

 

Aerospace & Electronics is Crane Holdings’ most profitable segment. Its moat mainly stems from its intangible assets, high switching cost and high barrier of entry. A company’s intangible assets may not always be its brand name. For Crane Holdings, it is the company’s reputation for quality and reliability. Crane Holdings makes safety-critical components for aircraft, such as sensors, brake control systems and landing gear, and is held to high standards due to the importance of human lives. With a reputable track record, the company has established strong relationships with major aircraft manufacturers, including Boeing and Airbus.

 

The nature of this business has also enabled Crane Holdings Aerospace & Electronics business segment to create a high switching cost for its customers and a high barrier of entry for competitors. Aircraft manufacturers will not take the risk to source critical components from another supplier or a new entrant with no record. And it is because of this reason that a new entrant will find it difficult to compete in this space given that it will cost money and time to build both the product and relationship with the aircraft manufacturers from the ground up.

 

The next segment is Process Flow Technologies, which manufactures products that often perform a mission-critical function such as valves used in petroleum refining. The two main sources of moats for this business are intangible assets and high switching costs. As the company produces valves for harsh environments and handles dangerous substances, customers prioritise reliability and safety for their employees. With the reputation that Crane Holdings have built over the years, customers operating in such conditions will have very little incentive to switch suppliers.

 

The last business segment of Crane Holdings is Payment & Merchandising Technologies which also benefits from intangible assets, high switching costs and high barrier of entry.

 

The segment’s intangible assets come from its patented technologies. The advanced technology has helped over 50 mints and Treasuries around the world to design banknotes with security features to deter counterfeiters. Besides that, its technology helps immediate analysis of various coins and bills and maintains a high fraud detection rate. With such technologies and entrenched relationships with many central banks, Crane Holdings created high switching costs for its customers. Also, as this niche market has strict requirements for banknote and coin validation, it poses a huge challenge for new entrants to compete.

 

In March 2022, Crane Holdings announced its intention to spin off its Payment & Merchandising Technologies business which will be named Crane NXT. Crane Holdings will then retain the Aerospace & Electronics, Process Flow Technologies, and Engineered Materials segments.

 

However, I will only assign a narrow economic moat for Crane Holdings as the company lacks other sources of moat such as cost advantage. If the company can find a way to operate cost-effectively, I will raise its moat to a wide economic moat.

The performance of Crane Holdings is not satisfactory. Its revenue, net income and operating cash flow are inconsistent over the past 5 years, with its free cash flow sinking into the negative territory in late 2022. In terms of margins, Crane Holdings did well. Its gross margin and even net margins are consistent over the past 5 years and they are above the industry averages.

 

Both Crane Holdings ROE and ROIC suggest that the company’s capital allocation is not that good. Despite performing better than the industry average, the ROE fluctuate year to year, with some years below my minimum requirement of 12%. Its ROIC is also inconsistent and it is a percentage lower than its WACC, indicating that Crane Holdings’ cost of capital is more than its returns.

 

As Crane Holdings has a negative operating cash flow, I am not able to calculate its current debt servicing ratio. Hence, putting that ratio aside, we can see that the company did meet my other three requirements for a healthy balance sheet.

 

With a narrow economic moat and subpar performances, I will assign a higher margin of safety of 50%. Therefore, with an estimated intrinsic value of $91.36, I will only invest in the company if it is trading below the price range of $46.

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