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Georgia Gulf Corporation

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The specialty chemical sector has been in flux. Georgia Gulf Corporation (GGC) was recently a takeover target by Westlake Chemical, but that has fallen through. Shares of this Zacks #1 Rank (Strong Buy) soared on the takeover news but still have plenty of value.

Georgia Gulf manufactures chlorovinyls and aromatic chemicals as well as vinyl-based building and home improvement products.

Headquartered in Atlanta, its home improvement products include window and door profiles, mouldings, siding, pipe and pipe fittings and deck, fence and rail products.

Westlake Chemical Drops Takeover Bid

In September 2011, Westlake Chemical announced a $1.2 billion hostile takeover bid of Georgia Gulf at $30 a share. After discussion amongst the companies, Westlake increased its bid to $35 in February 2012.

But Georgia Gulf's Board of Directors rejected the offer.

On May 4, Westlake Chemical announced it was dropping its takeover bid.

Shares dropped under $35 on the news.

Georgia Gulf Crushed It In Q1

On May 2, Georgia Gulf reported its first quarter results and easily surprised on the Zacks Consensus by 39%. Earnings were 78 cents compared to the consensus at 56 cents.

Sales rose 9% to $859.9 million from $787.9 million a year ago. All three segments saw an increase in sales but the Building Products segment saw the largest jump, rising 19% to $187.2 million.

The first quarter operating results were the best for the quarter in the past 6 years.

Is The Housing Market Improving?

With building products being a big part of its business, the company has turned cautiously optimistic that the North American housing market has hit a bottom and has started to recover from recent record lows.

It also expects the cost advantage of domestic natural gas and growing global demand should provide support for solid operating rates in the vinyl industry, especially for housing and water infrastructure applications.

2012 Zacks Consensus Estimate Rises

Within the last 30 days, 2 estimates have moved higher for 2012 which has pushed the Zacks Consensus up 16% to $2.74.

This is actually a decline of about 25% from the $3.65 made in 2011.

But analysts see a return to growth in 2013 with earnings expected to grow 25.9% to $3.46.

Still Has Value

Shares skyrocketed on the takeover news in 2011. They have since cooled off now that the offer has been withdrawn but they are still well above the pre-takeover announcement.

Georgia Gulf has a forward P/E of just 11.7, under the S&P 500 average of 12.8.

It also has a price-to-book ratio of 2.1. A P/B ratio under 3.0 usually indicates value.

Georgia Gulf also has a really cheap price-to-sales ratio of 0.3. Its peers have a cheap P/S ratio too, averaging 0.8. A P/S ratio under 1.0 can mean a company is undervalued.

Georgia Gulf is a way for value investors in the specialty chemical sector to play the up tick in the housing sector.

Tracey Ryniec is the Value Stock Strategist for She is also the Editor of the Turnaround Trader and Insider Trader services. You can follow her on twitter at @TraceyRyniec.

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