Story Stocks^®

Crane (CR -3%) could use a pick-me-up today after being downgraded by UBS to "Neutral" from "Buy," citing a bumpy path over the near term. Crane manufactures various mission-critical components and technologies, primarily supplying to the aerospace, process industries, nonresidential construction, and payment automation end markets.

Briefing.com notes that shares of CR have struggled in recent trading, pulling back by around 15% in March. As a result, the stock sits roughly flat on the year and slightly lower since the company announced plans to separate into two independent, publicly traded firms in March 2022. CR is on track to spin off its Payment & Merchandising Technologies (P&MT) segment, which will be renamed Crane NXT and trade under the " NXT " ticker by April 3.

• It makes sense that CR is spinning off its P&MT segment as it is considerably different from its other businesses, which include Aerospace & Electronics (A&E), Process Flow Technologies (PFT), and Engineered Materials (EM). P&MT mainly revolves around electronic equipment and associated payment verification and authentication software. CR also boasts healthy relationships with many mints and Treasuries, supplying fiat currency to the U.S. Treasury for over 100 years.
• Despite its much-different end market compared to CR's other segments, it is the company's largest, with net sales totaling nearly 40% of FY22 revenue. P&MT also boasts the best operating margins by far, at 24.9% as of FY22, representing a 200 bp improvement from FY21 and a massive 15 pt expansion from FY20. Although sales fell by 7.3% yr/yr in FY22, vastly underperforming all other segments, this was primarily due to unfavorable comps from the year-ago period and FX-related headwinds.
• CR issued guidance for Crane NXT last month, expecting its sales to return to growth in FY23, forecasting +2-4% yr/yr. However, currency fluctuations will remain an issue, causing operating profits to experience a slight yr/yr decline.
• Market dynamics are advantageous, with CR anticipating its product authentication business to double in FY23. Meanwhile, its international banknote business should continue to perform well, supported by a robust backlog. Even though the Federal Reserve guided to a wide range of potential U.S. currency printing volumes for FY23, CR is also bullish on its U.S. business, pointing to high U.S. banknote demand.

Overall, without reporting a formal quarter as a standalone company, there is plenty of uncertainty surrounding Crane NXT. However, last month, CR's central theme for Crane NXT ahead of its public debut was that 2023 will be a resilient year with continuing profitable core growth. CR also reaffirmed its post-separation FY23 earnings guidance earlier this month, continuing to see EPS of $3.40-3.70.