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Zacks Investment Research downgraded Key Technology, Inc. to a Zacks Rank #5 (Strong Sell) on March 16, 2013.

Why the Downgrade?

The company’s poor financial results in the fiscal first quarter 2013 (ended December 31, 2012) seem to be the prime reason behind the rank downgrade for Key Technology. The company reported a loss in the quarter that came in at 16 cents per share, worse than a 5 cent loss reported in the year-ago quarter and 220% below the Zacks Consensus Estimate of a loss per share of 5 cents.

Sales plummeted 23.5% year over year to $19.9 million. Fall in sales, despite being partially offset by lower cost of sales, led to a decline of 24.3% in gross profits that settled at $6.5 million. As a percentage of sales, operating expenses grew from 33.8% in the year-ago quarter to 38.9% in the fiscal first quarter 2013.

The financial results for the quarter along with three quarters of negative earnings surprise out of four trailing quarters, with a negative earnings surprise of 72.7%, have raised skepticism over the financial health of Key Technology.

A ray of hope still remains, however, in the acquisition of Visys NV, a supplier of innovative digital sorters, by Key Technology. The transaction is valued at $21 million and is likely to be accretive to the company’s earnings in the first twelve months of acquisition.      

Other Stocks to Consider

Other stocks to watch out for in the industry are Columbus McKinnon Corporation (CMCO - Snapshot Report), with a Zacks Rank #1 (Strong Buy) while Campbell Soup Company (CPB - Analyst Report) and ConAgra Foods, Inc. (CAG - Analyst Report) each has a Zacks Rank #2 (Buy).

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