Bull Of The Day: KMG Chemicals (KMG)

KMG Chemicals (KMG – Free Report) is a Zacks Rank #1 (Strong Buy) and is the Bull of the Day following a strong beat of the Zacks Consensus Estimate.Let’s take a look at the recent quarter, estimate revisions and the valuation for this stock.

Description

KMG Chemicals manufactures, markets and distributes specialty, niche chemicals. The company manufactures, markets and distributes three wood preserving chemicals, pentachlorophenol, creosote and sodium pentachlorophenate, to industrial customers engaged in the wood preserving business. The company’s customers use these preservatives to treat wood and supply the treated wood products to end-users in a variety of industries, principally the railroad, utility and construction industries.

Recent Quarter

On December 11, the company reported EPS of $0.83 when $0.63 was expected.The $0.20 beat translates into a 31% positive earnings surprise.

The company had revenue of $111M, which was 3.8% higher than the estimate of $107M.

As a result of the beat on top and on bottom, investors bid up shares of KMG by 15% in the session following the release.

Revisions

Estimates for KMG are moving in the right direction.The July 2018 fiscal year has a $3.17 number as the Zacks Consensus Estimate and that is up from the $2.76 level it stood at in November.

Most investors are looking ahead to next year, even with this company reporting a mid-year fiscal year end.The Zacks Consensus Estimate for next year has moved from $2.40 in Septemeber to $3.21 in November and is now at $3.71.This is just what investors want to see.

Valuation

KMG trades at 21x forward earnings and that is just below the 22x industry average.I see a 2.9x book multiple, and that too is well below the industry average of 5.7x.

Growth is something that I look for, and I am please to see the July 2018 fiscal year is looking at 35% topline expansion.The analysts might not have a clear view out to the July 2019 year end as they only have 5% growth projected, but in a few months that number could move materially higher.