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Aggressive Growth

Rockwood Holdings, Inc. (ROC - Snapshot Report) analysts decisively raised their estimates following the company's most recent earnings surprise.

Company Description

Rockwood Holdings is a specialty and advanced materials maker. The company operates on a global scale and focuses on niche markets in the specialty chemicals, pigments and additives and advanced materials segments.

Sales Jump 26%

On Apr 29 Rockwood Holdings reported first-quarter results that included net sales of $834 million, a 26% improvement since the same period last year. The company saw double-digit improvement across each business segment.

Net income came in at $36 million, up from a $4 million loss one year ago. Earnings broke down to 47 cents per share, more than doubling the Zacks Consensus Estimate of 21 cents. This marked the third consecutive earnings surprise.

Cautiously Optimistic

Rockwood Holdings' CEO did say that some of the strong sales figures was due to customer replenishing, after delaying some activities during the darker days of the recession. However, he also continues that the company is disciplined, has strong margin and will continue to make organic growth a priority.

Estimates Rising

Despite the cautionary portion of the press release, analysts ratcheted up their full-year estimates. The Zacks Consensus Estimate for 2010 is up 50 cents to $1.57.

Rockwood Holdings is expected to earn $1.83 in 2011, up 26 cents since the report. If the company hits those forecasts the annual growth rates will be 221% and 16%, respectively.

Valuations

Rockwood Holdings is trading at over 15 times forward earnings, which is not bad, but other metrics, are showing a better value. The price to book ratio is 1.7, in line with its peers, and the price to cash flows is 5.9, better than the industry average of 8.9.

I would like to see the 1.6 PEG ratio come down a bit, but the earnings momentum and other valuations are encouraging enough to look past that ratio.

The Chart

Shares of ROC popped on the earnings news, but have sold off sharply. I don't like to see the patter of lower highs so you may want to wait for some signs of stability before jumping to buy.

Rockwood Holdings, Inc. - ticker ROC >
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Bill Wilton is the Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the market-beating Zacks Growth Trader service

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