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Bull of the Day: Kemet Corp (KEM)

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The Bull of the Day is an article that should show why a stock has become a Zacks Rank #1 (Strong Buy).  In speaking to that idea, we almost always stick to the idea of positive earnings estimates and what the near term outlook is.  For Kemet Corporation  (KEM - Free Report) I will do that, but I also want to highlight the fact that it had seen some tremendous recent price performance.

Zacks Rank #1 (Strong Buy)

Not only does Kemet Corporation (KEM - Free Report) have a Zacks Rank #1 (Strong Buy), it also carries Growth and Value Style Scores of “A” and a Momentum Style Score of “C.”  I tend to lean towards growth and with KEM you have 500% earnings growth on a year over year basis.  If you are into more recent growth, the 20% increase from the previous quarter has to make you smile as well.

On the Value front, the stock trades at 18x forward earnings, which is just below the 20x industry average.  A measure that value investors pay close attention to is the price to book multiple and KEM is trading at 4.9x book.  That is slightly above the 3.7x industry average, but one can guess that the reason for this is that the company is expected to show 48% revenue growth for the March 2018 fiscal year.

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Kemet Corporation, together with its subsidiaries, manufactures and sells passive electronic components under the Kemet brand worldwide. The company operates through two segments, Solid Capacitors, and Film and Electrolytic. Its products include tantalum, multilayer ceramic, film, electrolytic, paper, and solid aluminum capacitors, as well as EMI filters. The company offers its capacitors for use in the automotive, communications, computer-related, industrial, consumer, military/aerospace, and alternative energy industries. Kemet Corporation sells its products to original equipment manufacturers, electronics manufacturing services providers, and electronics distributors. The company was founded in 1919 and is headquartered in Simpsonville, South Carolina.

Upcoming Earnings

KEM reports on August 2 before the open, and this report is expected to be a big one. The current Zacks Consensus Estimate is calling for revenue of $281M and EPS of $0.18.   This will be a big move higher from the $185M and $0.05 posted last year and the $198M and $0.12 posted in the most recent quarter.

Big Seller

The other day, the company released a filing that a holder was moving to sell 8.416M shares.  When the largest shareholder is listed as Royce & Associates with a 2.95M share stake in the company.  Behind them, Dimensional Fund Advisors hold 2.8M shares.  The seller is K Equity LLC ( which holds a “platinum warrant” to purchase 26.8M shares and this follows a May 2011 sale of 10.8M shares and owned by Tom Gores.

Lost In The Rank

I don’t often mention when a stock is held in a portfolio that I manage, but this is the case for KEM.  On December 6, 2016 the stock was added to Stocks Under $10, a service that I manage that looks for low priced stocks that have a solid Zacks Rank.  Since that time, we have seen two earnings beats and the stock has risen more than 175%.

With excellent growth prospects ahead, KEM could easily double again from here over the course of the next year.

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