Kemet Corp. Won't Stay Down for Long

Kemet Corp. (KEM) is the largest manufacturer of capacitors in the United States. Capacitors are ubiquitous in virtually all electronic systems. Kemet focuses on the two fastest growing segments - Tanalum and Ceramic capacitors.

They supply through distributors [47% of sales], OEMs [32% of rev.] and EMS [21% of sales]. North America, Asia and Europe are approximately 30%5, 40% and 30% of sales respectively.

FY 2007 [ends March 31, 2008] will likely see EPS of $0.38 versus $0.42 in FY 2006. Consensus estimates for FY 2008 are now at $0.47 or up about 24% year-over-year.

That means KEM shares now sell at just 10.6x trailing and < 8.6x forward projections.

The slightly down earnings year coupled with the weak stock market environment has pushed KEM shares to below their low prices since 1998. The shares have hit annual peak prices of $9.00 and higher in each year since 1995- most of the time when fundamentals were not as favorable as they are today.

Value Line expects a 20 P/E multiple for their 3- 5 year share price projections of $19 - $30. Even 15 times projections for FY 2008 leads to a very conservative 12-month target price of $7.05 or + 75% from yesterday's quote.

Long-term debt is a moderate 29% of capital and Kemet held $165 MM in treasury cash as of September 2007.

As of Dec. 31, 2007 these were some large holders:
[Dec. 31, 2007 price: $6.63/share]

• Dimensional Fund Advisors - 8.83%
• Sprucegrove Inv. Mgt. - 6.27%
• Barclays Global - 5.42%
• LSV Asset Mgt. - 5.42%
• Brandes Inv. Partners - 3.82%
• Deutsche Bank - 5.04%
• AXA - 3.27%
• Royce & Assoc. - 3.36%
• Vanguard Group - 2.93%

There has been a flurry of insider buying in Kemet shares this month. Director Robert Paul bought 6000 shares for $25,000 on March 12. Olof Loof Per purchased 62,500 shares for $267,000 on March 12. Daniel Lamorte bought 10,000 shares for $42,000 on March 13 – 14. Larry McAdams purchased 10,000 shares for $40,000 on March 17th.

Kemet is a healthy, profitable, small-cap value trading near 12-year lows. Even just a bounce back to its year-end 2007 closing price would be a gain of over 65%. Kemet looks to have the 'capacity' to shock you with a 50% - 100% capital gain over the next 12 - 24 months.

Disclosure: Author has a long position in Kemet shares.

Comments

[df:]

I see their PE at finance.yahoo >100. That's pretty much, isn't it? They will have such a big increase in profit?

2008 Mar 24 12:11 PM

[Paul Price:]

You need to look at operating earnings [net of one-time charge offs].

2008 Mar 24 12:41 PM

[nyka:]

This reads like a promo piece from a CEO hanging tenaciously to his position.

2008 Mar 25 12:14 PM

[Paul Price:]

New Value Line Report on Kemet - KEM
Date: April 7, 2008 12:25 PM


In the latest Value Line report [released on-line today and dated April 11] they see Kemet earning $0.44 /share for the calendar year 2008.

While the shares have crept up from a recent low of $3.93 to $4.48 [as of 12:20 PM] they still trade for about 10x this year's projections.

Value Line is using a lower than historical 15 multple in their 3 - 5 year target price range.
Applying that [in my view] very conservative 15 multiple to the $0.44 estimate would bring KEM shares back to a price of $6.60 or up 47% from the current quote.

Kemet shares have actually exceeded that target price during each of the past 13 years. In fact, they hit $9 and up in each year from 1996 - 2007.

By 2011 - 2013 Value Line sees KEM earning $1.05 /share and has a 3 - 5 year target price range of $13 - $19.

Insiders have been buying- Four separate open market purchases during March.

2008 Apr 07 12:30 PM

[truthinvesting:]

paul have you been avearging down on this stock since first recommending it north of 7 dollars?

2008 Aug 03 09:36 AM