Crawford United Corporation: How CRAWA Can Stay a Long-Term Compounder
The story is far from over for this under-the-radar industrial conglomerate.
Ever since reading this BusinessWeek profile on the Rales brothers of Danaher (NYSE:DHR) fame in high school, the idea of building a similar industrial conglomerate/compounding machine has always been in the back of my mind.
In hindsight, of course, I should’ve just bought DHR stock with my paper route money. While Danaher’s stock price performance has been lackluster over the past few years, shares really took off in the late 2010s, when Danaher began divesting legacy businesses, becoming more of a healthcare equipment and life sciences company rather than an industrial conglomerate.
Worse yet, in the 2010s, I had a second opportunity to not just come along for the ride, but “get in early,” with an up-and-coming industrial conglomerate/compounder opportunity: Crawford United (OTCMKTS:CRAWA).
CRAWA has experienced some zig-zag price action over the past five years, but shares in this Cleveland-based industrial conglomerate have continued to hit new all-time highs. Those who bought in when its Danaher-esque pivot took shape have seen strong gains.
Moreover, while Crawford United needs to overcome some new near-term challenges, the ingredients remain in place for an eventual move to even loftier price levels.
Crawford United Corporation: Background
As Alluvial Capital’s Dave Waters discussed in a 2019 write-up published at his former blog OTC Adventures, since republished on Alluvial’s Substack, Crawford United, formerly known as Hickok Inc., is an old company that only a decade ago started to go the industrial conglomerate compounder route.
Between 2016 and 2018, Hickok purchased companies in the industrial hosing, air handling, and precision aerospace components industry, and divested its legacy automotive-related industrial business. By 2019, these newly-acquired businesses had experienced a material improvement in their respective profitability compared to when Hickok bought them.
Not surprisingly, this led to Hickok/Crawford United shares experiencing rapid price appreciation during this time period, surging from under $2 per share, to prices nearing $20 per share. However, 2019 is not when the roll-up story ends. Over the past six years or so, Crawford has continued to focus on acquiring industrial companies and enhancing their profitability. Over a multi-year time frame, these deals have been highly accretive to earnings.
As seen on Crawford’s website, the company now consists of 13 operating subsidiaries. The company’s most recent acquisition, HVAC coil and protective coatings maker Rahn, closed at the start of this year. CRAWA’s price performance has been volatile over this time frame, yet those who bought during one of several rounds of heavy weakness would’ve experienced outsized gains.
For instance, during mid-2020, aka the lockdown phase of Covid, CRAWA was back down in the mid-teens per share. By mid-2021, shares had bounced back to prior levels, and hit new all-time highs (around $35 per share), only for the stock to make a full trip back to the mid-teens during 2022 and early 2023.
Chalk up this reversal up to the impact of high inflation and the supply chain crisis on Crawford’s acquisition and profit maximization strategy. However, not too long after this, major headwinds eased. Crawford’s profitability took off like a rocket. In 2022, net income came in at $6.6 million ($1.89 per share), but in 2023, earnings and EPS more-than doubled, rising to $13.3 million and $3.79 per share, respectively.
With this, CRAWA not surprisingly bounced back not just to past highs, but onto new price levels, climbing up above $40 per share for the first time a little over one year ago. Over the past twelve months, Crawford has kept climbing, even as operating performance has been far less stellar as of late.
Recent Developments
As seen in Crawford United’s full-year results for 2024, the factors at play driving strong earnings growth in 2023 had a far lesser impact during the year. For FY2024, Crawford reported revenue of $150.2 million, up around 4.4% from the $143.9 million in revenue reported during FY2023.
Operating income increased by around 10%, from $17.9 million to $19.7 million, with improved results from Crawford’s commercial air handling division (subsidiary Air Enterprises) offsetting decreased demand for marine products, machined defense parts, and forged aerospace products.
Net income increased by only 2.26%, from $13.3 million to $13.6 million, but this was in some part due to a reported loss on an equity investment. In terms of EPS, diluted EPS increased by just 1.6%, from $3.77 to $3.83 per share.
For Q1 2025 results, year-over-year sales growth came in at 12.7%, operating income increased 7% compared to the prior year’s quarter, with earnings/EPS rising by 4.5%. However, the aforementioned Rahn acquisition played a major role in these improvements.
Furthermore, while the Rahn deal increased sales/operating income for Crawford’s Commercial Air Handling unit, two other recent acquisitions (Advanced Industrial Coatings and Heany Industries) were a drag on Industrial and Transportation Products segment’s profitability.
CRAWA Stock Valuation
With shares rising in value faster than the rate of earnings growth, CRAWA stock has been the beneficiary of multiple expansion. Attribute this perhaps to increased price discovery, exacerbated by the fact that CRAWA is fairly illiquid, with four-figure daily volume representing heavy trading for shares.
Whatever the reason, for those who have yet to buy, this means that CRAWA now trades at a much higher valuation than before: 14x forward earnings, and at a forward EV/EBITDA ratio of 8.4x. Yes, compared to Danaher, CRAWA’s current valuation is still arguably in value territory.
However, while I am the one making the “Crawford could be a future Danaher” argument, I’m talking mainly about the “old Danaher,” aka Danaher before it began making the life sciences pivot, and was still primarily an owner of old school industrial companies. Crawford remains a few steps away from becoming the next Danaher, Dover (NYSE:DOV), or Illinois Tool Works (NYSE:ITW).
For now, a fair valuation is one at the upper range of valuations for similar-sized companies in similar industries. In the case of CRAWA, that would be micro cap-sized companies in the aerospace and building products industries. Think, for example, companies like Environmental Tectonics (OTCMKTS:ETCC) and Burnham Holdings (OTCMKTS:BURCA,OTCMKTS:BURCB), which trade at mid-to-high single-digit EBITDA multiples.
That said, in the near-term CRAWA may have the potential to experience a moderately-high rise in value, even without multiple expansion. Over a longer time frame, certain tweaks to Crawford’s game plan could yield both price appreciation in tandem with earnings growth, as well as price appreciation due to further multiple expansion.
Potential Near-Term Catalyst: Moderate Upside on Improved Profitability
Investors may be cutting CRAWA some slack, following the release of “okay but not great” results, but in the quarters ahead, if results fail to improve further, we could see a repeat of what played out in 2020 and 2023. No, I’m not saying CRAWA will make a full retreat back to $15 per share.
Rather, the stock could experience a moderately-high pullback to lower price levels, perhaps back down to the $30s per share, if the coming quarters play out similarly to Q1 2025. That said, depending how much Rahn’s margins improve under Crawford United’s ownership.
Based on prior results, CRAWA’s Air Handling unit has had operating margins in the low-to-mid 20s range in recent years. With Rahn generating annualized sales of $18 millions, this suggests that this segment could eventually generate annual EBITDA of around $4.5 million. Not too shabby, for a business acquired for just $13 million.
Using operating income plus depreciation/amortization as proxy for EV, we can argue that Commercial Air Handling generated EBITDA of just under $20 million. Add $4.5 million to that figure, and we get $24.5 million in EBITDA for just this segment.
As for the Industrial and Transportation Products segment (Crawford’s other subsidiaries), we will create an estimate for this segment’s operating income in 2025.
Based on the 10-K, 2024 operating earnings for this segment were $5.1 million. Last quarter, operating income totaled $1.4 million. If we annualize this figure, we get around $5.7 million for this segment’s estimated full-year operating income. It may be reasonable to use this latter figure, given how Q1 2025 are inclusive of Crawford’s latest acquisition for this segment (AIC), and given how, as stated in the 10-K, one of the factors impacting demand for machine defense parts started to ease during Q4 2024.
Taking this $5.7 million figure, then adding $3.67 million in depreciation/amortization, we get segment-level EBITDA of around $9.4 million. Adding this to the Air Handling total, we get EBITDA (before corporate expenses) of around $33.9 million.
Based on prior full-year financials, Crawford United has just under $5.1 million in annual corporate overhead. Deducting this from the $33.9 million figure, we get an estimated full-year 2025 EBITDA of around $28.8 million.
Again, I believe that CRAWA’s current EBITDA multiple (8.4x) is appropriate, given the balance between Crawford’s further potential as a serial acquirer, balanced with the cyclical nature of Crawford’s businesses, plus other factors that justify a discounted valuation relative to larger, more liquid industrial conglomerate stocks.
Apply this 8.4x multiple to our EBITDA estimate, and we get a gross valuation of around $241.9 million for the company. Subtract around $28.4 million in debt and lease liabilities, and we get a net valuation of around $213.5 million. Based on Crawford’s current share count, 3.55 million (inclusive of both Class A and B shares, exclusive of treasury stock), this translates into a stock price of around $60 per share, or around 22% above present price levels.
Potential Long-Term Catalyst: CRAWA Re-Rates on Successful Execution, Increased Scale, Improved Liquidity
Despite past success with acquiring industrial companies and improving their profitability, the numerous hiccups seen so far this decade suggest that Crawford still needs to prove that it can consistently execute on its roll-up strategy. Perhaps improved results over the next year or so will help trigger this sort of sentiment shift.
If this happens, CRAWA could begin an extended process of re-rating towards a higher valuation multiple. However, that’s just one factor that needs to be in play, for this long-term potential catalyst to play out. Alongside execution, CRAWA needs to ramp up its scaling-up efforts.
That is, the company needs to consider making some larger acquisitions. While there may be greater execution risk with larger deals as opposed to the middle-market transactions CRAWA has largely focused on before, right off the bat I can think of a perfect acquisition candidate for the company: Butler National (OTCMKTS:BUKS).
I’ve written about BUKS previously here at Value Never Sleeps. I am bullish that BUKS, while up considerably over the past decade itself, could climb higher as the company figures out how to split the casino business from the aerospace business. Perhaps once BUKS accomplishes this, Crawford could acquire Butler and its various aerospace companies.
There could be cost and growth synergies between these segments, and Crawford’s existing aerospace segments. Furthermore, given the valuation gap between BUKS and CRAWA, even if BUKS were to be acquired at a premium, it would still likely represent an accretive deal for CRAWA.
Speaking of aerospace, Crawford may want to focus on this area in particular, maybe even try to emulate what other aerospace-focused roll-up vehicles like TransDigm Group (NYSE:TDG) have accomplished. Alongside greater scale/a possible pivot towards aerospace, CRAWA may want to also consider moves that enhance the liquidity of shares.
Per CRAWA’s latest proxy statement, the Crawford family and other insiders own 69.9% of the Class A shares (1 vote per share) and 82.5% of the Class B shares (3 votes per share). Again, this limited amount of outstanding floats explains some of the share price volatility, as well as the lack of trading volume.
Although the Crawfords and other insiders may not necessarily want to cede some control of the company to outside investors, doing so could pay off considerably in the long-run. Given the high level of existing ownership, not to mention the stock’s high valuation compared to possible acquisition targets like Butler, Crawford could be well-positioned to make accretive acquisitions using its common stock, all while leaving insiders still with considerable control over the company.
Finally, increased liquidity would pave the way for CRAWA to move up from the OTC markets, to a major market NYSE or NASDAQ listing. This too would likely have a positive effect on valuation.
Bottom Line on CRAWA
Although there may be a clear path for CRAWA to hit $60 per share this year, given the stock’s low liquidity, you may want to wait for the next round of weakness before starting to enter a position.
Given CRAWA’s past trading patterns, plus the fact that near-term headwinds for the company’s Industrial and Transportation Products segments have yet to fully go away, I believe there is a strong chance that Crawford United shares experience a double-digit pullback sometime this year.
Purchasing at that point could prove profitable, assuming that Crawford’s profitability experiences modest improvement, justifying a bull run to new all-time highs (around $60 per share). As for a longer time frame, you may want to wait until more signs emerge that Crawford plans to scale up its acquisition strategy, shifting to a strategy similar to that of the one proposed above.
DISCLOSURE: As of Publication, The author (Thomas Niel) held a position in BUKS.
DISCLAIMER: I wrote this article myself, and it expresses my own opinions. I am not receiving compensation from CRAWA or any other entity for writing this article. I have no business relationship with CRAWA, or any other company referenced.This article is for informational purposes only, and should not be construed as investment advice. Please consult your financial advisor before making any investment decision. Please be aware of the risks associated with trading CRAWA stock. Do your own due diligence, and caveat emptor.