Kennametal Inc. - Value

Kennametal Inc. (KMT) is now seeing double digit sales growth as the global economic downturn appears to be over.

The company also has the secret combination that all investors should look for: both value and growth. It has a PEG ratio of just 0.5.

Kennametal is a global manufacturer of tooling, engineered components and materials used by many industrial users. The company's customers are involved in many industries from airframes, to coal mining, to engines and oil wells.

Have the Bad Times Passed?

On Oct 28, Kennametal announced its fiscal first quarter results and surprised on the Zacks Consensus Estimate for the 4th quarter in a row.

This quarter, however, it barely squeaked by, beating by just a penny at 47 cents versus the 46 cents consensus. But a beat is a beat.

This was a sharp improvement with the year ago period where the company saw a 4 cents per share loss.

Sales jumped 29.3% to $529 million from $409 million last year. Organic sales climbed 34% while unfavorable currency impacts offset it by 3%.

Both of its segments, Industrial and Infrastructure, saw sales growth in the quarter. The Industrial segment grew sales by 33% to $248 million with Asia leading the way with a 40% increase followed by the Americas with 30%.

Sales in the Infrastructure segment rose 23% to $199 million as sales of energy and related products soared 46%. There was also stronger demand for earthworks products.

Again, it was Asia which led geographically, with a 40% jump in sales, followed by the Americas at 22% and Europe at 13%.

Sales and Earnings Guidance Raised for Fiscal 2011

Kennametal was optimistic about the rest of fiscal 2011 as it expects moderate global growth to continue. It raised both its sales and earnings forecast for the fiscal year.

Organic sales is now expected to range between 19% and 21% compared to the prior range of 14% to 17%.

EPS is forecast in the range of $2.25 to $2.45 which is up sharply from the prior range of $1.85 to $2.15 per share.

Zacks Consensus Estimates Jump On the News

Given the upward guidance revision, it's not surprising that analysts scrambled to revise their earnings estimates for fiscal 2011. They have also been revising fiscal 2012.

7 out of 9 estimates for fiscal 2011 moved higher in the last week, as the Zacks Consensus jumped to $2.40 from $2.19. That is earnings growth of 115.8% as the company made just $1.11 per share in fiscal 2010.

Analysts expect the good times to continue to roll into fiscal 2012 as 8 out of 13 estimates moved higher in the last week as well, pushing the 2012 Zacks Consensus to $2.87 from $2.81.

Kennametal Has Growth and Value

This Zacks #1 Rank (strong buy) is trading with a forward P/E of 14.3 which is just under what I consider to be a "value" stock (with a P/E of 15.)

However, it is still cheaper than the S&P 500, trading at 14.7x, and its peers, trading at 16.6x.

It gets the low PEG number from its growth. Earnings are expected to grow 26.4% over the next five years. So investors get both an attractive valuations and the growth, which is a great combination.

As an added bonus, shareholders get a dividend with a current yield of 1.4%.

Tracey Ryniec is the Value Stock Strategist for Zacks.com. She is also the Editor in charge of the market-beating Zacks Value Trader service. You can follow her at twitter.com/traceyryniec.

 
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