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A long-term expected earnings growth rate of 13.5% on the back of its restructuring initiatives and prudent cost management should keep Rogers price momentum intact.
Earnings Improve, Good Times Ahead
On November 5, Rogers Corporation reported third-quarter earnings of 69 cents per share, beating the Zacks Consensus Estimate by 7.8% though falling short year over year. Earnings per share have seen an improving trend so far in 2012 with the third quarter witnessing a 47% surge from the prior quarter and a whopping 165% increase from the first quarter of 2012.
Revenues of $130 million came a bit under the Zacks Consensus Estimate of $132 million.
Margins in the quarter were affected by declines in sales volumes and costs associated with the planned shutdown of the Bremen operation, as well as a decline in inventory levels. Gross margin contracted 140 basis points to 33%. The companys initiatives to streamline its operations had a positive impact of $2.5 million in the quarter. Adjusted operating margin dipped 310 basis points to 9.1%.
The company has embarked on restructuring and streamlining activities, which include efficiencies in supply chain and manufacturing operations, cost reduction activities and headcount reductions. These initiatives contributed around $4.5 million in cost improvements during the quarter, ahead of the expected level of $3.0 million. The company expects better operating profit leverage on future sales growth given the lower cost structure now in place. Going forward, these initiatives are expected to counter weak market conditions.
A Better Quarter Ahead
For the fourth quarter, the company expects revenues between $129 million and $135 million. Compared to the year-ago quarter, the guidance projects an annual sales growth of 2% to 7%. Earnings per share are expected between 69 cents and 79 cents, which suggests a year over year increase of 64% to 88%.
Earnings Estimates Skewed Higher
For 2012, all 4 estimates have been revised higher in the last 60 days, raising the Zacks Consensus Estimate by 7% to $2.18 per share. For 2013, two of 4 estimates moved higher over the same period, sending the Zacks Consensus Estimate for 2013 upward by 1% to $2.84. This suggests year-over-year growth of 30.5%.
Valuation is Expensive but Justified
Rogers Corporations valuation looks stretched compared to its peers with respect to most of the metrics. The stock is currently trading at a forward P/E of 22.29x, a 46% premium to the peer group average of 15.28x. Its trailing twelve months P/E of 26.49x is at a 61% premium to the peer group average of 16.42. The price-to-book of 1.91x is above the peer group average of 1.68x. The price-to-sales of 1.59x is also above the peer group average. While investors can get jittery looking at this valuation, the long-term earnings potential should lend support.
Sound Technicals and Healthy Performance
Rogers Corporation is currently trading above its 50- and 200-day moving averages, which stand at $43.17 and $40.42, respectively. Interestingly, following a golden crossover in the early second half of 2012, the 50-day moving average continues to read higher than the 200-day moving average, manifesting a bullish trend.
On the performance front, Rogers Corporation has outperformed the S&P 500 over the past year and has delivered a year-to-date return of 33% versus 15% for the benchmark.
Founded in 1832, Connecticut-based Rogers Corporation manufactures specialty materials and components that cater to the following markets - portable communications, communications infrastructure, consumer electronics, mass transit, automotive, defense, and clean technology. With market capitalization of roughly $810.3 million, Rogers Corporation operates facilities in the United States, Belgium, China, Germany and South Korea, with joint ventures and sales offices worldwide. It employs over 2,600 employees. Rogers Corporation operates through the High Performance Foams unit, the Printed Circuit Materials unit and Power Electronics Solutions unit.
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