Kennametal Lags Its Peers as Options Traders Turn Bullish

KMT reported earnings on November 4, the same day this note was filed, and the positioning heading into the print was notably tilted toward optimism rather than caution.

The clearest signal came from options. The put/call ratio dropped to 0.19 on November 3, almost 1.8 standard deviations below its 20-day mean of 0.37. That is the most call-heavy reading in recent weeks, a sharp reversal from a PCR that had been running above 0.45 for most of late October. Options traders were loading up on upside exposure ahead of the number, not hedging against a miss. The 52-week PCR range stretches from 0.02 to 1.05, so the current reading is not an extreme by annual standards, but the speed of the shift from neutral to bullish in a single session is worth noting.

Short interest, however, tells a less charged story. At 8.5% of the free float, shorts remain a meaningful presence on the register. But they have been retreating: SI has fallen roughly 14% over the past month, dropping from above 7.6 million shares in late September to around 6.5 million. The pace of that covering eased last week, with only a 1.2% week-on-week decline, suggesting the bulk of the cover trade may have already played out. Borrowing costs are loose at 0.44% and borrow availability is exceptionally wide at over 4,000%, meaning there is no squeeze dynamic in the lending market. Shorts can exit or add freely. The short score of 47.4, in the 23rd percentile for its sector, confirms positioning is on the lighter rather than the heavier side of the risk spectrum.

The Street has spent most of 2026 revising its view lower. Morgan Stanley downgraded to Underweight in August, cutting its target to $27. JP Morgan lowered its Underweight target from $34 to $30 in October. DA Davidson and UBS also trimmed through the summer. The mean price target is $31.43, fractionally above the current price of $30.53, implying the consensus sees almost no upside from here. The bear case centres on a structurally uncomfortable truth: much of the recent EPS strength is attributed to tungsten price-cost timing, with analysts suggesting that stripping out the transitory benefit leaves perhaps $1.30 to $1.55 of core earnings power. Free operating cash flow has been guided at negative 30% of adjusted net income for the year, adding another friction point. Against that, the bull case points to a second consecutive quarter of organic volume growth after nine quarters of declines, restructuring savings of $30 million targeted in FY26 and $35 million more in FY28, and a supply chain that the company argues is well insulated from Chinese tungsten risk through Bolivian sourcing, recycling, and owned processing assets. Valuation factors are interesting: EV/EBIT ranks in the 95th percentile and earnings yield in the 91st, suggesting the stock is cheap on absolute metrics even if earnings quality is disputed. EPS surprise history ranks in the 83rd percentile, so the company has a track record of beating estimates even in difficult cycles.

Peer performance this week adds a layer of context. TNC gained 9.3% over the week and IR added nearly 12%, while KMT managed only 2.2%. Industrial machinery names broadly caught a bid, but Kennametal lagged. GTES fell 4.9%, offering some comfort that the week was not uniformly strong across the group. The divergence between KMT and the stronger performers is consistent with a market that is willing to pay for industrial exposure in names where the earnings trajectory is clearer.

BlackRock holds just over 16% of shares, Dimensional 6.3%, and State Street and American Century each hold roughly 4%. The register is institutionally dense, with 274 holders in total. No 13D activist is on file. Recent insider activity in October was entirely composed of option exercises and associated tax-withholding sales, with no open-market buying or selling, standard compensation mechanics rather than a conviction signal.

What matters next is how the market receives today's earnings print and whether management provides any clarity on when the tungsten timing benefit begins to fade and what underlying demand looks like into early calendar 2027.