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Shares of paper and paper products manufacturer KapStone Paper and Packaging Corporation (KS - Snapshot Report) scaled a 52-week high of $32.12 on Feb 27, before closing the trading session nominally lower at $31.54. This translates to a phenomenal year-over-year return of 136.8%. KapStone’s share prices have steadily been on the uptrend from Jun 2013.

This Zacks Rank #3 (Hold) stock is currently trading at a forward P/E of 14.0x and is likely to continue the growth momentum in the near future with long-term earnings growth expectations of 5.0%.

Growth Drivers

KapStone registered record fourth quarter and full year 2013 results primarily driven by the accretive acquisition of Longview Fibre Paper and Packaging, Inc. Consolidated quarterly net sales increased 87% year over year to $563 million as Longview contributed $241 million of additional revenues. The company also sold 703,000 tons of paper during the quarter compared with 408,000 tons in the year-earlier period.

Operating income for fourth quarter 2013 improved an astronomical 289% on a year-over-year basis to $74 million on the back of the Longview acquisition and higher containerboard and corrugated product prices, partially offset by higher fiber costs and a less favorable product mix.

Consolidated net sales for full year 2013 increased 44% year over year to $1,748 million. Operating income for the year doubled to $220 million due to the Longview acquisition and higher selling prices, partially offset by higher fiber and maintenance outage costs.

Cash flow from operating activities improved to $130 million during the reported quarter from $40 million in the prior-year quarter. This enabled KapStone to repay $89 million of debt, including a voluntary prepayment of $40 million. As a result, the company reduced the debt leverage ratio to 2.7x from 3.8x. Consequently, the company will be able to reduce its interest margin spread on its bank loans by 25 bps from early Mar 2014.

Estimate Revisions

Over the last 30 days, KapStone’s earnings estimates for 2014 have climbed higher on expectations of a solid earnings momentum. We also see an upward thrust on the stock backed by its strong growth potential.

Other Stocks to Consider

Stocks in the industry that warrant a look include Resolute Forest Products Inc. (RFP - Snapshot Report), holding a Zacks Rank #1 (Strong Buy), and Clearwater Paper Corporation (CLW - Snapshot Report) and Fibria Celulose SA (FBR - Snapshot Report), both carrying a Zacks Rank #2 (Buy).

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