Why Rentech's Shares Jumped

Although we don't believe in timing the market or panicking over market movements, we do like to keep an eye on big changes -- just in case they're material to our investing thesis.

What: Shares of fertilizer and renewable energy company Rentech jumped 17% today after the company announced an acquisition.

So what: Rentech will buy wood chip processor Fulghum Fibres for $112 million, including debt. Two plants that are being acquired have contracts for 445,000 metric tons of product annually, providing a stable customer for Rentech.

Now what: Management expects the new assets to generate $10 million in operating income and $20 million of EBITDA this year, which is solid for what the company paid. This provides another potential growth avenue for Rentech if it is able to expand its customer base. The stock currently trades at 10 times forward earnings estimates, a decent value given this addition and I think the stock will move higher as revenue from this deal hits the income statement.

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The article Why Rentech's Shares Jumped originally appeared on Fool.com.

Motley Fool contributor Travis Hoium has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

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