Smallcap Electronics Supplier Key Tronic Reports Blowout Quarter - More Upside Ahead? (KTCC)

On Tuesday, Key Tronic (KTCC) preannounced strong 4th quarter earnings. The company raised its guidance by a large amount as 4th quarter (Jun) EPS is now expected at $0.18-0.20 vs. $0.07-0.12 prior guidance, with revenues expected to be around $52 million from the previous $46-50 million level.

The company said 'exceptionally strong factory utilization and manufacturing efficiencies' accounted for the dramatic outperformance. Additionally, it seems like things may only be getting better as the company indicated:

While the new business wins during fiscal 2006 did not significantly impact our fourth quarter results, we continue to expect that those new programs will begin contributing revenue in the coming fiscal year.

This is of interest because it sounds like all their new business will be coming on board in the upcoming quarters, so the trend of strong financial performance may just be beginning.

Additionally, a comparable small cap company is Simclar (SIMC) which is in the same business line and ran from $5 to $14 in a month or so after it recently released strong numbers.

Not surprisingly, the stock was up huge yesterday, approximately 50%, to $6.37 to a new all time high on record volume of over 2 million shares. However, if you even assume a stable 20 cents a share per quarter over the next 3 quarters you get a forward looking EPS number of 80 cents which if achieved would make even the price of $6.37 look extremely low in my opinion.

The company has a low float with slightly less than 10 million shares outstanding and a surprising 39% institutional ownership. The market cap is a tiny $62 million.

This is a risky play. However, it is one that could pay off huge if momentum continues and KTCC continues to deliver these type of results.

Business description:
Key Tronic is a leading contract manufacturer offering value-added design and manufacturing services from its facilities in the United States, Mexico and China. The Company provides its customers full engineering services, materials management, worldwide manufacturing facilities, assembly services, in-house testing, and worldwide distribution. Its customers include some of the world's leading original equipment manufacturers.

Full disclosure: Author is long KTCC

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