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KEMET (KEM) to Report Q1 Earnings: What's in the Offing?

Zacks Equity Research

KEMET KEM is set to report first-quarter fiscal 2020 results on Aug 1.

Notably, the company’s earnings beat the Zacks Consensus Estimate in the trailing four quarters, the average being 21.02%.

In the last reported quarter, adjusted earnings of $1.05 exceeded the Zacks Consensus Estimate by 9 cents and also skyrocketed 138.6% year over year.

Also, net sales increased 11.9% year over year to $355.8 million and topped the consensus mark of $340 million as well.

What to Expect in Q2

For first-quarter fiscal 2020, KEMET expects revenues between $338 million and $348 million, up approximately 3.2-6.2% from the year-ago reported quarter.

The Zacks Consensus Estimate for revenues is currently pegged at $342.1 million, which indicates growth of 4.43% from the number reported in the year-earlier period.

Further, the Zacks Consensus Estimate for earnings stands at 73 cents, suggesting 32.7% surge from the figure reported in the prior-year quarter. However, the consensus mark for the metric has been revised 2 cents downward over the last 30 days.

Kemet Corporation Price and EPS Surprise

Kemet Corporation Price and EPS Surprise

Kemet Corporation price-eps-surprise | Kemet Corporation Quote

Let’s see how things are shaping up for the upcoming announcement.

Factors at Play

KEMET’s second-quarter results are likely to benefit from growth in the Solid Capacitors segment, driven by robust ceramics and tantalum polymer product sales. The company expects the results to be driven by the consistent strength of its diversified product offerings across multiple geographies.

Higher demand for Multilayer Ceramic Capacitors (MLCCs) from automotive, telecom and Industrial end markets is a tailwind. Further, an improved product mix, pricing and volume from capacity expansion are likely to remain major catalysts this earnings season.

However, declining Film and Electrolytic business due to softness in the Asia Pacific region persistently hurts the company’s top line. Weakness in the distribution channel due to excessive inventory with distributors is anticipated to affect the upcoming results as well.

Additionally, the ongoing trade war between the United States and China remains a key concern. Although management expects tariffs to leave a minimal direct impact, it remains to be seen how much indirect effect it has on the results.

Moreover, rising R&D investments coupled with increasing spend on SOX compliance work may keep margins under pressure.

What Our Model Says

The proven Zacks model clearly shows that a company with a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) has maximum chances of beating estimates if it also has a positive Earnings ESP. Zacks Rank #4 (Sell) or 5 (Strong Sell) stocks are best avoided. You can uncover the best stocks to buy or sell before they’re reported with our Earnings ESP Filter.

KEMET currently carries a Zacks Rank #3, which increases the predictive power of ESP. However, its Earnings ESP of -0.45% makes surprise prediction difficult.

Stocks to Consider

Here are some stocks worth considering as our model shows that these have the right combination of elements to beat on earnings in their upcoming releases:

Ciena Corporation CIEN has an Earnings ESP of +5.26% and a Zacks Rank #2. You can see the complete list of today’s Zacks #1 Rank stocks here.

CGI Group, Inc. GIB has an Earnings ESP of +1.27% and a Zacks Rank of 2.

GTT Communications, Inc. GTT has an Earnings ESP of +144.44% and a Zacks Rank #3.

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