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Kimball International

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Shares of Kimball International Inc. (KBALB) gained significant momentum following the announcement of impressive fourth quarter 2012 results on August 2, which including earnings that exceeded the Zacks Consensus Estimate by 4 cents (350%). Kimball is a Zacks #1 Rank (Strong Buy) with shares that have jumped nearly 90% year to date.

Kimball Reports Impressive 4Q

Fourth-quarter revenue increased 2.6% year over year to $290.1 million. Revenue for the Electronic Manufacturing Services (“EMS”) segment grew 1.1% to $164.9 million. Furniture grew 5.0% to reach $125.3 million.

Kimball reported net income of $6.6 million or 18 cents per share, compared with $0.6 million or 2 cents in the year-ago quarter, primarily driven by exceptionally strong margin expansion in the reported quarter.

Kimball reported an operating income of $12.1 million, compared with loss of $0.8 million in the year-ago quarter, primarily driven by a strong gross margin (up 330 basis points) and lower Selling and Administration expense (down 4.2%). Restructuring actions have led to a lean cost structure, which helped margin expansion in the reported quarter.

Zacks Consensus Estimates Up

Kimball has outperformed the Zacks Consensus Estimate by an average of 258.3% in the trailing four quarters. Currently, the Zacks Consensus Estimate for fiscal 2013 is pegged at 34 cents, up 11 cents (47.8%) over the last 90 days. During the same period, the estimate for fiscal 2014 went from 0 to 49 cents.

Kimball Remains Undervalued

Currently, Kimball is trading at a discount to its peers. It is trading at a P/S of 0.34x compared to the industry average of 0.50x. Kimball’s P/B of 1.00x also trails the 1.06x average for the industry. Most significantly, Kimball has a return on equity (ROE) of 3.6%, substantially better than negative 1.1% for the industry, reflecting continued growth opportunities going forward.

Kimball shares are up 85.5% year to date, compared to a mere 8.9% increase for the S&P 500. The stock is currently above its 50 and 200 day moving averages of 8.45 and 7.08, respectively.

Kimball shares have also outperformed peers such as Jabil Circuit Inc (JBL), Plexus Corp (PLXS), Steelcase Inc (SCS) and Herman Miller Inc. (MLHR), among others, on a year-to-date basis. Trading volumes have increased considerably (well above its three months average) over the last 7 days.

Headquartered in Jasper, Indiana, Kimball International was incorporated in 1939. The company manufactures and sells products under two segments: Electronic Manufacturing Services (60% of total revenue in fiscal 2011) and Furniture (40% of total revenue in fiscal 2011).

Kimball started producing wood Furniture in 1950, selling to offices and hospitals under different brand names. Kimball started providing EMS services much later in 1961. Currently, the company has eight manufacturing facilities through which it serves the medical, automotive, industrial and public safety markets.

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