When Will Crane Holdings Take Flight?

Key Points

• Crane Holdings posted a strong Q4, but shares may not take flight. 
• Institutional selling has capped gains in 2022 and 2023. 
• An upcoming spin-off may keep investors on the sideline, at least for now. 

If you are wondering if Crane Holdings NYSE: CR stock will take flight and move up to a new high, the odds are high that it won’t, at least not right away. Numerous factors in play point to higher prices, but headwinds are also in place that may keep the stock from moving significantly higher in the near term.

Among those are the institutional holdings which have been getting smaller and smaller each quarter for the last year or so. The institutions still hold about 70% of the stock, so they could keep it from moving higher indefinitely should this trend persist. Also, the upcoming spinoff of Crane NXT may weigh on share prices.

The spin-off is expected to unlock shareholder value, and it should, over time, but that value may already be priced into the market.

The spin-off of Crane NXT will result in a stand-alone business that houses the current company’s digital payment processing and banknote manufacturing under one roof. The remaining Crane Company will include the core businesses of Aerospace & Electronics, Engineered Materials and the remaining portions of the Process Flow and Payment & Merchandising segments.

The stock is trading at very low multiple relatives to the broad market so there should be some multiple expansion but again, this will be over time. It is unlikely the 2 stand-alone businesses will reach their full potential immediately, and the market is already getting a taste of that. The first guidance for the new companies was less than what the market was looking for and has share prices down in the wake of the Q4 earnings release. 

Crane Holdings Has Great Q4, Offers Cautious Guidance 

Crane Holdings Q4 came in better than expected and with core holdings doing all of the heavy liftings. The company posted $824.1 million in net revenue for a decline of -0.1% versus last year. The good news is that revenue beat the consensus by 50 basis points, a slim margin but still a beat, with core sales up 11%.

On a segment basis, Aerospace & Electronics led with a gain of 15%, followed by an 8% increase in Payment & Merchandising. Process Flow and Engineered Materials posted declines, but Process Flow’s core sales are up 8%, while Payment & Merchandising core sales are up a stronger 15%. 

The best news in the report is that margins widened significantly. The GAAP operating margin increased by 440 bps, and the adjusted operating margin by 660, to drive record earnings on the bottom line. The GAAP $1.87 is up 53% and not a record, while the adjusted $2.13 is up 63% and a company record that beat the Marketbeat.com consensus by 1200 bps.

The bad news is that much of the company’s weakness was seen in the soon-to-be-spun-off businesses and that is echoed in the guidance. While both companies are expected to produce earnings and growth, all the strength is centered in the core Crane Company.

The Analysts Are Buying Crane Holdings

The analysts have Crane Holdings pegged at a Buy with a price target trending higher but takes that with a grain of salt. There are 3 analysts with coverage less than a year old, and they all came out in 2022. The most recent is from Morgan Stanley, which upped its rating to Overweight from Equal in December 2022 and raised the price target to above the current consensus.

The consensus of $125 is about 13% above the current price action, leading the market higher, but questions about the spin-off remain, including what will happen to the dividend. The company had to use up a fair amount of cash over the last year, divesting its asbestos business and had negative cash flow for 2022.

That should not be repeated now, and adjusted cash flow was at least in-line with the previous year, so the post-spin companies should be able to maintain a payout equal to the current $1.88 or 1.7% between them.

The Technical Outlook: Crane Holdings Capped At Resistance 

Crane Holdings has been in an uptrend for years, but that trend may be over, at least for the foreseeable future. The price action hit a resistance target at an all-time high before the Q4 release, and it is now pulling back strongly. The pre-market action is down more than 2.5% and indicates if not, confirmation of resistance at this level. If the market can regain upward momentum soon, the stock price could move into a deeper correction and/or a trading range that keeps it capped at the current levels.