Recently there has been a frenzied renewal of interest in Bitcoin as the crypto currency has rocketed out of a base in the mid-$20,000s to recently touch $45,000. Whether you trade crypto or not, all of the angles and arguments are fascinating. And the characters involved in the debate are bold and colorful. From crypto haters like JP Morgan’s (JPM) CEO Jamie Dimon who testified before Congress yesterday, to CEO Michael Saylor at Microstrategy (MSTR), whose company is basically a Bitcoin holding company.
But, whether you adhere to either argument, for or against crypto, fiat currency isn’t going away any time soon. In fact, fiat currency, the actual paper in circulation, is growing at about a 6% clip annually. And, as one of the pro crypto arguments correctly points out, fiat currency is increasingly under attack from counterfeiters using more and more advanced techniques…can you say AI?
But, never fear, there is a company already battling to keep global fiat currency safe, and Crane NXT (CXT) is turning a tidy profit from their efforts.
If I gave you two guesses what the company “Crane” does, some of you with an aerospace and defense background would say they make power management systems for aircraft. And, others would say they make high end stationery…those of us who used to actually put pen to paper would remember the look and feel of paper and envelopes. And, you’d all be correct.
Earlier this year, the aerospace and defense (along with high pressure flow management) business, and the “paper” business, separated into two companies. Aerospace and defense is now Crane Company (CR) and paper is now Crane NXT (CXT). I want to focus on CXT, which it turns out, is WAY more than just stationery.
The company operates two main business lines, the design, technology, and printing of actual fiat currency, and detection and authentication systems used to guarantee transactions by preventing counterfeit payments. And, there is a third more nascent but growing business, of counterfeit product detection and authentication built around technology developed in the fiat currency business.
This third business is very exciting because there is basically an unlimited supply of products which could use either the micro-optic technology, as in technology that can see a pattern/shape/size of an object (or something printed on the object) to authenticate it. Or, the microstructures technology, literally weaving an unnoticeable fabric or “structure” into a product that is detectable by CXT devices. CXT currently estimates the market for these services to be in the $5 billion range.
The detection and authentication technology, in both the currency and product businesses, employs very sophisticated technology in which Crane is a market leader. This technology, along with the customer relationships the company has in dealing with U.S. and international governments in the currency area, provides a moat around much of Crane’s business.
Crane NXT stock has done quite well since the separation of the two companies, at one point being up over 50%. The stock should have a tailwind, both with the continued growth, and threats to fiat currency, and the increasing need to track products, for a variety of reasons, including supply chain verification and product safety issues.
In its recent earnings report CXT reported increasing operating profit margins, to 28%, and that it was raising full year guidance. Sales in the quarter grew 5.3% YoY, and the company was able to pay down $125 million in debt in the quarter. Crane NXT has a PE ratio under 10, and the stock trades at just 1.7 times sales.
Crane NXT is an overall B rated stock in our POWR Rating system, putting it above 82% of the stocks we track. Unsurprisingly it ranks very highly in the Quality component, with a stable “cash” business (couldn’t resist) and with that low PE is highly rated in the Value component as well.
Bitcoin may, or may not, be the currency of the future, but that future remains in the distance. In the meantime, increasing threats to fiat currency, combined with governments that are literally printing money at a brisk clip, should provide a stable business for Crane NXT. And it is using this stable base to expand into very logical adjacent and growing businesses.
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CXT shares were trading at $50.60 per share on Thursday afternoon, up $0.06 (+0.12%). Year-to-date, CXT has gained 46.53%, versus a 21.15% rise in the benchmark S&P 500 index during the same period.
About the Author: Steven Adams
After earning a law degree cum laude with a focus on securities law, Steven worked as a Nasdaq market maker for a large broker dealer, and then as a trader for an arbitrage focused proprietary hedge fund. He subsequently worked as a consultant for a Fortune 500 consulting firm serving both government and commercial clients, including the NYSE, Prudential, FDIC, and NASA. More...
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