) delivered its third consecutive positive earnings surprise on
April 23, and earnings estimates have been soaring ever since.
This has sent the stock to a Zacks Rank #1 (Strong Buy).
Based on current consensus estimates, analysts project 43% EPS
growth this year and 39% growth next year. Despite this stellar
growth, shares trade at just 12.5x forward earnings.
RockTenn manufactures corrugated and consumer packaging. It was
founded in 1936 and has a market cap of $7.0 billion.
Big Second Quarter Beat
RockTenn reported better-than-expected second quarter results for
the second quarter of its fiscal 2013 on April 23. Adjusted
earnings per share jumped 16% to $1.12, beating the Zacks Consensus
Estimate by 10 cents. It was the company's third consecutive
positive earnings surprise.
Net sales increased 2% to $2.325 billion, driven by a 7% increase
in the Corrugated Packaging segment.
Turning 2% sales growth into 16% EPS growth means one thing:
expanding profit margins. The gross margin expanded 80 basis points
to 16.6% in the quarter, while total segment income increased 60
basis points to 7.5%. Meanwhile, interest expense declined 16%,
which drove the net profit margin higher.
Earnings estimates have soared since RockTenn's big second quarter
beat, which has sent the stock to a Zacks Rank #1 (Strong Buy).
The Zacks Consensus Estimate for 2013 is now $6.40, up from $5.88
just 60 days ago, and representing 43% EPS growth over 2012. The
2014 consensus has risen from $7.75 to $8.93 over the same period,
which corresponds with 39% EPS growth.
While people think the paper industry is dying, the 'Paper &
Related Products' industry ranks in the top 20% of industries
according to the Zacks Industry Rank.
Former Dunder Mifflin manager Michael Scott would be proud.
The valuation picture look very reasonable for RockTenn. Shares
trade at 12.5x 12-month forward earnings, which is in-line with its
RockTenn also trades at just 6.5x cash flow, well below the
industry median of 10.0x.
The Bottom Line
With rising earnings estimates, strong growth projections and
reasonable valuation, RockTenn offers investors a lot to like.
Todd Bunton is the Growth & Income Stock Strategist for
and Editor of the
Income Plus Investor service
ROCK-TENN CO (RKT): Free Stock Analysis Report
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