source: http://www.ringtheregister.com/stockpicks/keytronic_ktcc_prof...
TYPE OF PLAY: VALUE/SECTOR STRENGTH/TECHNICAL ANALYSIS
Quick Facts: *Price/sales ratio of 0.23 versus showing a severe discount to other industry peers such as Flextronics (NASDAQ: FLEX)
*P/E ratio under 11 with removal of any one-time gains for the previous 4 quarters
*Global presence with facilities in the United States, Mexico and China
*Consistently profitable each quarter
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For the last several years, Key Tronic Corporation has been focused on becoming a leader in the lucrative electronic manufacturing services (EMS) market. This specific sector is in a strong growth trend that shows no signs of slowing. The rate at which many industries are moving towards outsourced manufacturing has even been the subject of national debate over the last decade. Electronic Trend Publication estimates that the worldwide EMS market is expected to grow from $195 billion in 2006 to approximately $244 billion in 2008. Accordingly, there are significant opportunities for well positioned companies.
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Recent developments
EARNINGS:
Revenues for the first 9 months of 2007 came in at $152.6 million, up 13% from $135.2 million in the same period of 2006. Current expectations are for $200 million throughout the full year 2007. It is important to note that they also managed to reduce inventory levels to 35.3 million from 39.3 million in previous quarter. During the recent 3rd quarter conference call, the company speaks about new customer programs that started in the previous quarter {Q2} adding 6% of their 3rd quarter revenue, citing their continued ramp up. Two new customer programs added to the 3rd quarter revenue stream with an additional four new programs slated to start in the 4th quarter. A key point taken from the conference call is that margins are expected to further improve in the upcoming quarters.
NEW CONTRACTS:
Last month, Key Tronic entered into an agreement with Imation Corp (NYSE: IMN), a worldwide leader in removable data storage, and is expected to contribute approximately $20 million to Key Tronic's annual revenue. This contract is approximately 10% of the current yearly revenue and accordingly represents a significant advancement to forward growth.
FACILITIES:
A new SMT production line became operational at the Spokane Valley headquarters within the latest quarter. This facility will provide rapid response, new product introduction process, prototype production, low-volume and highly specialized PCB assembly for programs that require domestic sourcing. Although this initially put temporary pressure on margins, the company has stated that it will begin producing revenue in the current quarter. This of course directly exposes Key Tronic to new clients as well as increased business from existing customers.
On May 11, 2007, Key Tronic announced that it closed the sale of its Las Cruces, New Mexico facility. This will bring in approximately $4.3 million dollars in the next quarter. ($2.8 million in cash and a $1.5 million note).
INDUSTRY:
It is also important to note that Flextronics International Inc. (NASDAQ: FLEX) entered into a definitive agreement to acquire rival, Solectron Corp. (NYSE: SLR) for $3.6 billion. This clearly tells us that companies are seeing the value within their own sector and indicates a trend towards further industry consolidation.
Technical analysis
From a technical standpoint, the stock has been in a gradual uptrend since February. It has worked its way up over the 200 day moving average while simultaneously establishing a solid base to move advance from. Importantly, the RSI remains positive yet not overbought. Additionally, the chart displays the presence of several unfilled gaps in the $5.50 and mid $6.00 ranges.
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Chart Courtesy of http://www.stockcharts.com>
More about the company
Key Tronic Corporation provides a range of services that currently include: engineering, manufacturing and assembly, materials management, as well as in-house testing. Core strengths of note are innovative design and engineering expertise in electronics, mechanical engineering, and precision plastics. These are combined with high-quality, low-cost production and assembly services on a global basis. This global presence is maintained with distribution from its facilities in the United States, Mexico and China. This provides Key Tronic customers with both logistical and material procurement flexibility, yet allows the company to remaining highly cost competitive.
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</center> These customers comprise some of the leading original equipment manufacturers, including Clorox, International Gaming Technologies, Lexmark, Qualcomm, Transaction Printer Group and Zebra. Key Tronic's In recent periods, the company has taken specific steps to expand the core capabilities of its facilities in both Mexico and China which has given them the ability to offer a greater range of capabilities, competitive pricing, global logistics and enhanced customer service.
LINKS FOR FURTHER READING:
KTCC homepage
SEC filings for KTCC
General KTCC statistics
Flextronics purchase of Solectron
$4.98 (06/21/07)
