Crane NXT, the industrial technology company known for its work in secure, detect, and authenticate solutions, has been delivering solid performances. However, beneath the surface lies a potential risk tied to their Crane Currency segment - an over-dependence on the US government for revenue.

While Crane NXT highlights its expanding international currency business, with growing adoption of its micro-optics technology by central banks worldwide, the US government remains its largest customer. This dependence, while seemingly stable, poses a risk, especially with the ongoing US currency redesign program.

International Success, But US Dominates

While Crane NXT highlights its expanding international currency business, with growing adoption of its micro-optics technology by central banks worldwide, the US government remains its largest customer. This dependence, while seemingly stable, poses a risk, especially with the ongoing US currency redesign program.

The Redesign Risk: Shifting Priorities

Crane NXT is upgrading equipment to accommodate the new US banknote series. This process involves significant shutdowns, impacting revenue. The assumption of flat volumes and a similar denomination mix in 2024 might be optimistic.

The US Treasury could prioritize printing the new $10 note, impacting demand for older denominations. Furthermore, the extent to which new designs will incorporate micro-optics remains uncertain. Both factors could significantly impact Crane NXT's short-term revenue.

Quantifying the Potential Impact

Crane Currency derives approximately half its revenue from the US government. A 10% reduction in demand for older denominations in the second half of 2024, due to a shift in printing priorities, would translate to a 5% reduction in Crane Currency revenue and a 2.5% impact on overall Crane NXT revenue.

This hypothetical scenario, depicted in the chart above, shows the significant portion of Crane NXT revenue that could be affected by a decline in US government demand.

Mitigating Factors: CPI Rebound and OpSec Acquisition

While the Crane Payment Innovations (CPI) segment is facing challenges, the company expects a rebound in gaming orders in the fourth quarter. Additionally, the recent acquisition of OpSec Security, expected to contribute $80 million to $90 million in revenue in 2024, aims to diversify revenue streams.

The Bottom Line: Navigating Uncertainty

Crane NXT's long-term prospects remain positive. However, the dependence on the US government and the uncertainties surrounding the currency redesign program pose a significant short-term risk. Successfully navigating this transition and diversifying revenue streams will be crucial for the company's continued success.

"Fun Fact: Evolution of US Currency"

The first US $10 note featured a portrait of Alexander Hamilton, who advocated for a national bank.

Micro-optics technology, a key feature of Crane NXT's offerings, was first introduced on the US $100 bill in 2013 as a major security enhancement.

The ongoing redesign program aims to further enhance security and stay ahead of counterfeiting threats.