Graphjet Technology (NASDAQ:GTI)

We are removing Graftech Intl from the GeoSpecial List. On February 24, 2010  we coded GTI as a short-term trading play @ $12.3. at $16.70, the stock has now attained a P/E of 15 on 2010 estimates of $1.12, which is a scenario investors commonly apply to attain a short-term price target.  However, applying a P/E of 25 would give it value for long-term investors.  Analyst price targets exceed $20.00.

Based on International Monetary Fund (IMF) projections and other economic forecasts, the global recession has largely concluded in most regions and recovery is underway in advanced and emerging economies, although to varying degrees. The recovery is expected to continue however risks remain to global economic stability. Accordingly, steel producers have raised operating rates to respond to current market demand and have begun to extend their graphite electrode buying patterns.

First quarter results came in stronger than expected as a result of improved global demand, which necessitated higher operating rates at our graphite electrode facilities than we had initially anticipated. Excluding the impact of first quarter foreign currency gains on the remeasurement of intercompany loans, we expect second quarter results to be slightly higher than the first quarter as improving graphite electrode volumes are offset in part by lower graphite electrode market prices and rising raw material costs. The third quarter, which has historically been a weaker quarter, is expected to be lower than the second quarter as graphite electrode volumes decline in response to weaker demand associated with the normal European holiday season. As a result, we expect operating income to be lower in the third quarter, as compared to the prior quarter, with demand anticipated to return in the fourth quarter.

Our Engineered Solutions segment has historically entered a recession three to six months later than our Industrial Materials segment, and likewise has historically exited the recession three to six months after our Industrial Materials segment. Therefore, we expect increasing traction in this segment in the second half of 2010.

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