) reported revenue growth of 67% in its fiscal third quarter thanks
in part to last year's acquisition of Smurfit-Stone, which should
keep it poised for even more growth moving forward. With low
valuation metrics, including a low price-to-sales (P/S) ratio of
0.6, this Zacks #1 Rank (Strong Buy), paper and packaging company
is a compelling value pick.
Fiscal Third Quarter
On July 24, Rock-Tenn posted a third-quarter fiscal 2012 profit of
$58.2 million or 81 cents per share, compared with a loss of $30.1
million or 60 cents per share a year-ago. The results were boosted
by a solid double-digit growth in sales.
Adjusted earnings (excluding items) of 95 cents per share, however,
missed the Zacks Consensus Estimate of $1.02. The company had to
contend with higher costs and a supply outage in its corrugated
packaging business during the quarter.
Revenues soared 67% year over year to $2.3 billion, buoyed by last
year's acquisition of leading paperboard maker Smurfit-Stone. The
$3.5 billion acquisition has reinforced Rock-Tenn's corrugated
packaging business and helped it to boost its market share in the
profitable containerboard and corrugated business.
The company witnessed growth across the board in the quarter with
sales from the core Corrugated Packaging division more than
doubling year over year to $1.5 billion, driven by the
Smurfit-Stone buyout. Growth was also witnessed across the Consumer
Packaging and Recycling and Waste Solutions divisions.
Rock-Tenn will report its fourth quarter results after the closing
bell on November 1. In its third quarter commentary, the company
said it expects earnings of roughly $1.35 per share for the fourth
quarter. Analysts polled by Zacks are currently expecting earnings
of $1.37 on an average.
Earnings Momentum on the Move
The Zacks Consensus Estimate for fiscal 2012 is up 0.4% in the past
30 days to $4.47 per share, as five of 10 estimates were revised
upward. As for fiscal 2013, seven estimates out of ten have lifted
the Zacks Consensus Estimate by 13.6% to $7.27 per share,
representing an estimated year over year growth of 62.6%.
A Value Stock
Rock-Tenn has plenty of reasons to be labeled a value stock. In
addition to having a low P/S, the stock has an attractive forward
P/E ratio of 10.0. It also has a low price-to-book (P/B) ratio of
1.5. (A P/S ratio lower than 1.0, a P/E below 15.0 and a P/B ratio
under 3.0 generally indicate value.) Moreover, the company has a
1-year ROE of 10%, which is higher than its peer group average of
The stock has performed reasonably well so far this year,
generating a year-to-date return of roughly 25%.
Founded in 1936, Rock-Tenn Co. is among the leading integrated
manufacturers of corrugated and consumer packaging and recycling
solutions in North America. The company has emerged as the
second-largest maker of containerboard in North America following
the Smurfit-Stone acquisition. Rock-Tenn, which has a market cap of
roughly $5.1 billion, operates in more than 240 locations across
the U.S., Canada, Mexico, Chile, Argentina and China.
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