Georgia Gulf Corporation (GGC) reported its strongest performance in over a decade in its third quarter report from earlier this month, which boosted earnings momentum for this specialty chemical manufacturer. Furthermore, this Zacks #1 Rank (Strong Buy) touched its 52-week high of $43.06 on November 19. Its pending merger with chemicals producer PPG Industries, Inc (PPG) also creates a positive opportunity.

Solid Third Quarter Beat

On November 6, Georgia Gulf reported third-quarter earnings of $1.38 per share, beating the Zacks Consensus Estimate by 17.0% and the year-ago earnings by 84%. The top line declined 12.5% to $813.5 million.

Adjusted EBITDA improved to $236.5 million against $193.8 million in the prior-year quarter with the Chlorovinyls segment posting a robust increase. Chlorovinyls’ profits improved due to lower chlorine and natural gas-based costs, higher caustic soda prices and higher volumes.

EBITDA Outlook Raised

Based on its above-average results in 2012, Georgia Gulf raised its 2012 adjusted EBITDA guidance to between $285 million and $315 million from the prior range of $255 million - $285 million. The company plans to gain from the recovery in the U.S. housing market, a higher GDP growth rate than year-ago levels, lower natural gas costs, and improved domestic and export demand for polyvinyl chloride (PVC).

Pending Merger with PPG Industries

In mid July, Georgia Gulf entered into a merger agreement with PPG Industries, under which the former will be merged with PPG’s commodity chemicals business to form a new company. The transaction is yet to be approved by Georgia Gulf shareholders and is expected to be completed by early 2013. We believe that the merger will drive Georgia Gulf’s earnings by generating significant cost savings and free cash flow.

Earnings Estimates Rising

Over the last 30 days, the Zacks Consensus Estimate for 2012 has advanced by 10.5% to $3.05, as 4 of 6 estimates were revised higher. The Zacks Consensus Estimate for 2013 has increased 8.9% to $4.54 over the same time frame, reflecting a year-over-year increase of 48.8%.

Chart Showing Consistent Rise

Shares of Georgia Gulf have been rising consistently since the announcement of the PPG merger, though it experienced some volatility in between. The stock reached a new 52-week high on November 19. Moreover, the stock is currently trading above its 50- and 200-day moving averages, which stand at $38.34 and $33.76, respectively.

Volume is strong, averaging roughly 713K daily. Georgia Gulf has outperformed the S&P 500 since the announcement of the PPG merger. The year-to-date return for the stock is 120.9% compared with the S&P 500’s return of 10.3%.

Based in Atlanta, Georgia Gulf manufactures chlorovinyls and aromatic chemicals as well as vinyl-based building and home improvement products. Its home improvement products include window and door profiles, moldings, siding, pipe and pipe fittings and deck, fence, and rail products. The market cap of the company is $1.43 billion.

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