Additionally, valuations are attractive and the chart is pointing to a nice entry point.

Company Description

OM Group is a specialty chemical and advanced materials. Products are used in rechargeable batteries, industrial coatings, medical devices, aerospace and many other applications around the world.

$1 Billion Purchase

On Jul 5 OM Group said that it is buying a German company for roughly $1 billion. There is also a $50 million portion of equity involved. Management said it will add to the specialty chemical and metal-based business as well as boost the alternative energy market.

Estimates Pop

After the news EPS estimates jumped. The full-year Zacks Consensus Estimate for this year is now $3.16, up from $2.73 in the past 60 days. Next year's forecasts average $3.46, up from $2.97 in that same time span.

In 2010 OM Group earned $2.88 per share, putting growth rates at 10% for each of the next 2 years.

Ahead of Expectations

Part of that rise in earnings estimates was due to the May 5 earnings surprise. Sales were up 9% to $331 million last quarter, which led to EPS of $1.02.

Analysts were looking for just $0.64 per share, giving them a sizable surprise. OM Group now has 7 consecutive earnings surprises and just 2 misses in the past 5 years.

Valuations

Shares of OMG are trading at more than reasonable multiples. The forward P/E is about 12 times, which give them a PEG ratio near 1.3. The stock is going for less than 1 times sales and is right near book value.

The Chart

OMG has seen some nice support at these levels. Additionally the stochastic is indicating that shares are over sold. Those factors combined with the valuations should make this a nice entry point.

Bill Wilton is the Aggressive Growth Stock Strategist for Zacks.com. He is also the Editor in charge of the Zacks Small Cap Trader service