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Momentum

Shares of AEP Industries Inc. have jumped 20.7% since its fiscal third-quarter announcement on September 10, and reached its 52-week high of $62.00. This provider of packaging solutions reported a fivefold increase in profits during the quarter, driven by higher volumes and a positive impact from the acquisition of Webster Industries. It delivered a whopping earnings surprise of 228.4%, and achieved the Zacks #1 Rank (Strong Buy) status on September 27.

Impressive Quarter

AEP Industries posted a profit of $12.3 million or $2.20 per share for the third quarter of fiscal 2012, which increased fivefold from last year’s $2.5 million or 43 cents. The result also beat the Zacks Consensus Estimate by a significant margin of $1.53 per share.

Net sales rose 19% to $292.0 million, driven by a 6% increase in sales volumes and a 1% increase in average selling prices. The acquisition of Webster added $30.7 million to net sales during the quarter. Gross profit surged 60% to $56.5 million, primarily driven by increased sales volumes and improved material margins.

Earnings Momentum on the Rise

Most analysts raised their estimates for both fiscal 2012 and 2013 following the earnings announcement. Over the last 30 days, the Zacks Consensus Estimate for 2012 jumped 94.7% to $4.40 as both estimates were revised higher.

The Zacks Consensus Estimate for 2013 advanced 128.7% in the same timeframe to $6.38, again on upward revisions to both estimates. The Zacks Consensus Estimates for 2012 and 2013 reflect year-over-year growth of 547.1% and 45.0%, respectively.

Valuation Looks Reasonable

AEP Industries currently trades at a forward P/E of 14.1x, an 8.4% discount to the peer group average of 15.4x. The price-to-sales (P/S) ratio of 0.3 is also at a 25.0% discount, compared to the peer group average of 0.4. The company has a 1-year ROE of 33.2%, which is much higher compared with the peer group average of 12.4%.

Chart Shows Strength

After moving sideways with the 50-day and 200-day moving averages, the stock started outperforming them early this year. It currently stands above the 50-day average of $50.86 and the 200-day average of $38.81.

Volume is averaging roughly 29K daily. The company has outperformed the S&P 500 over the past year. The 1-year return for the stock is 178.4% compared with the S&P 500’s return of 30.6%.

Headquartered in South Hackensack, New Jersey, AEP Industries Inc. was founded in 1970. The $332.3 million company is a leading manufacturer of plastic packaging films. AEP manufactures and markets an extensive and diverse line of polyethylene and polyvinyl chloride flexible packaging products in the U.S. and Canada. Its products are used in the packaging, transportation, beverage, food, automotive, pharmaceutical, chemical, electronics, construction, agriculture, carpeting, furniture and textile industries.


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