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Technology Stocks : Kemet Corp. -- Ignore unavailable to you. Want to Upgrade?

To: Jack Hartmann who wrote (20)	7/3/2000 10:27:53 PM
From: Jack Hartmann	Read Replies (1) \| Respond to of 22

7/3/00 on briefing.com Trader's Edge: Kemet Corp. (KEM) 03-Jul-00 00:05 ET [BRIEFING.COM - Robert J. Reid] Kemet Corp. (25 1/16) presents a compelling valuation play for a company in a sector with robust demand. Kemet is the largest manufacturer of solid tantalum capacitors and the fourth largest manufacturer of multilayer ceramic capacitors in the world. Tantalum and ceramic capacitors are the two fastest growing sectors in the U.S. capacitor industry. Capacitors are electronic components that store, filter and regulate electrical energy and current flow used in virtually all electronic applications and products including communication systems, data processing equipment, personal computers, automotive electronic systems, and military and aerospace systems. When one couples the fact that Kemet's business is booming with its low p/e ratios, Kemet is a very attractive stock at current levels. Trading Points Business conditions are robust as the company continues to successfully push through price increases throughout its product lines. The company has an impressive customer list of original equipment makers (OEMs) including Compaq, Dell, Ford, Motorola, Lucent, Intel, and IBM. Kemet enjoys broad customer diversification as only one customer accounted for over 10% of sales over the past three years. Demand greatly outstrips supply across Kemet's product lines. The company's capacity remains sold out well into the future, even after taking into account its aggressive capacity expansion plans. To illustrate the supply-demand disparity, the company recently stated that if it were to try to satisfy all the perceived demand out there today, it and all of its competitors would need to double its capacities. The combination of higher prices and higher volume should continue well into 2001 due to capacity constraints within the sector. On June 13, Kemet pre-announced that it would significantly beat the consensus estimate for the June quarter (which will be reported July 24). The company said it expected it would beat the consensus by at least 50%. The consensus estimate at that time was $0.49 which would translate to at least $0.73 in the quarter. The current consensus estimate is still only $0.63, so the company should surprise to the upside by a significant amount. In fact, Kemet has beat the consensus estimate in each of the previous four quarters. Briefing.com believes that earnings will be the drivers for technology stocks over the coming few quarters, a trend that would be very helpful to a profitable company like Kemet. Kemet is expected to post earnings of $2.86 this year and $3.49 next year, which are up significantly from the $0.85 earned last year. The company is aggressively adding capacity to satisfy demand. On May 1, Kemet announced a 30,000 square foot addition to a South Carolina ceramic capacitor facility which is part of a cap-ex program for the ceramic business which includes a 50% capacity expansion of existing products as well as a rapid ramp-up of capacity for other leading-edge products. Capital equipment installations are also being made in Kemet's North Carolina and Mexico facilities. Kemet is attractively valued relative to its competitors and relative to the market overall. AVX Corp. (AVX 22 15/16) and Vishay Intertechnology (VSH 37 15/16) are Kemet's two closest competitors. On a p/e basis, KEM is especially attractive as it trades at only 8.8x this year's consensus EPS and 7.2x next year's EPS. AVX and VSH trade at 12.5x and 12.0x for this year and 10.7x and 9.9x for next year, respectively. EPS growth rates for each of the three are low relative to their p/e ratios: consensus EPS growth rates for next year versus the current year are 22%, 17% and 21% for KEM, AVX and VSH, respectively. For Kemet, its 22% growth rate for next year is on top of a stellar 236% rise for the current year. On a price-to-sales ratios, the three are similar as Kemet is a smaller company on a sales basis with KEM, AVX and VSH trading at 2.7x, 2.4x and 2.6x, respectively. A blemish on this story that may or may not be important but is worth noting is that the company's CEO Dave Maguire sold 1 million shares in May adjusted for a recent 2-for-1 split. ******************* Glad to see the article. Jack