KMG Chemicals, Inc. (KMGB) recently reported a record fiscal first quarter as the chemical sector heats up. KMGB is attractively valued, trading at 11.6x forward earnings.

Company Description

KMG Chemicals manufactures specialty chemicals in 3 segments: Electronic Chemicals, Animal Health, and Wood Preservatives.

In Electronic Chemicals, KMG Chemicals provides acids, solvents and other chemicals used to manufacture semiconductors from its facilities in Colorado and in Milan, Italy.

In the Wood Preservatives segment, it is the only producer of penta in North America, which extends the service life of utility poles, railroad crossties and construction timber.

In Animal Health, its chemicals protect livestock and poultry from flies and other pests.

KMG Chemicals Surprised by 13.89% on the Fiscal First Quarter

On Dec 7, KMG Chemicals reported its fiscal first quarter 2010 results which beat the Zacks Consensus Estimate by 5 cents. There is only 1 analyst covering the company. Earnings per share were 41 cents compared to just 14 cents in the year ago period. The Zacks Consensus called for 36 cents.

It was a record first quarter period for the company as the Electronic Chemical sales improved throughout the quarter and finished close to their pre-recessionary levels. Some of the increase, however, was seasonal.

Wood Treating Chemical revenue rose to $25.5 million from $24.6 million in the year ago period. Penta sales, however, declined 9% as utilities cut back on their maintenance.

Animal Health revenue fell as poultry and beef prices impacted farm and livestock customers. The segment’s best quarters are seasonally weighted to the fiscal third and fourth quarters. KMG Chemicals is looking to expand its product line and is seeking acquisition targets.

Zacks Consensus Estimates Rise

KMG Chemicals is optimistic about fiscal 2010 due to the record first quarter. The one covering analyst has been raising fiscal 2010 estimates in the last 2 months. The Zacks Consensus has climbed by 15 cents to $1.20 per share in the last 60 days. Earnings per share are projected to jump a healthy 31.87%.

Earnings growth is expected to continue into fiscal 2011, with earnings expected to climb another 16.67%.

Value Fundamentals

KMG Chemicals is a Zacks #1 Rank (strong buy) stock. It is trading with a price-to-book of 2.02. The company has a solid 5-year average return on equity (ROE) of 12.98%. KMG Chemicals also pays a small dividend, with a current yield of 0.60%.

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.

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