Kemet Keeps Our Attention
by Seth Martin
1:43:00 PM January 04, 2001 GMT
--------------------------------------------------------------------------------
--------------------------------------------------------------------------------
Capacitor maker Kemet [KEM: NYSE] said Thursday that 3Q results will be consistent with previous guidance and top performance in previous quarters. The stock has gotten smashed by concerns over a slowdown in electronics purchasing but now trades at a valuation that should compel some investors to take a look at the stock for the long term. A Buy rating? You bet.
Kemet did not provide any specific numbers Thursday, saying only the quarter would yield record earnings and revenues. That means sales above the $364m posted in the second quarter and net earnings above last quarter’s $96.8m. The stock has seen a slight rise on the news, but it looks like a lack of hard numbers accompanying the announcement have left some investors cautious. Kemet will report 3Q results on Jan. 22.
Kemet is the largest maker of tantalum capacitors and the fourth-largest maker of ceramic capacitors. Capacitors store energy in electric devices, storing power so it can be doled out to power-hungry parts in portable electronics like wireless phones. Capacitors most often are two metal plates, each of which conducts electricity, separated by an insulator. They’re also used in telecommunications systems.
In the past we’ve recommended Kemet based on industry strength. That strength is no longer so apparent, especially with many of the electronics makers expected to put the kibosh on manufacturing expansion in 2001. But consider two things:
Earnings estimates for Kemet over the past two quarters effectively left out any chance for growth, and yet the firm was able to top estimates
Average annual earnings growth is still expected to be 15% over the next five years, little change from last Spring when shares were flying high. These two factors show that Wall Street chronically underestimates Kemet’s ability to grow, and yet analysts still have lots of long-term enthusiasm for the stock.
Now trading at a price-to-earnings ratio (P/E) of 4.25 based on FY02 estimates, Kemet is more attractively valued than passive component rivals Vishay [VSH: NYSE], at 5.1, and AVX [AVX: NYSE], at 6.2. The company also has significantly higher operating margins than Vishay or AVX – we believe this is due to Kemet’s specific focus on Tantalum capacitors (Vishay and AVX have broader product portfolios). We gave the stock a thumbs-up when it carried a P/E of 7.0 – you better believe we like it at current valuations.
Market Timing
From the Technical Desk
Kemet [KEM: NYSE] hurdled the Dec. 20 down gap yesterday and continues to make gains today. It looks likely that it will challenge resistance at $19-1/2 in one to two weeks.
Risk Tolerance: ***
(* Low risk, ***** High risk)
streetadvisor.com
I didn't ever see who the three largest makers of ceramic capicators are.
Jack |
