We raise our 12-month target price by $2 to $27, applying an EV/EBITDA multiple of 11.0x to our FY21 (Jun.) EBITDA multiple, a modest premium to KMT's five-year forward average given our view that KMT is emerging from trough earnings levels. We lower our 2021 EPS to $1.22 from $1.37. KMT posts Jun-Q adj. EPS of $0.15 vs. $0.84 in the prior-year quarter, beating consensus by $0.03. On an organic basis, Jun-Q sales were down 33% and adj. operating margin fell 700 bps YoY to 8.8%, driven by a significant slowdown in KMT's end markets, causing lower volumes and poor cost absorption. All segments were significantly impacted: Industrial (54% of sales, -36% organic YoY), WIDIA (9%, -32%), and Infrastructure (37%, -29%). Going forward, we see sequential improvement on the top line as economies reopen. Also, we think KMT will be in a favorable position as the market recovers, given its aggressive cost control and modernization actions. However, based on the uncertain pace of recovery, we maintain our Hold opinion.
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