RCG on upgrade path after acquisition

Footwear retailer RCG Corporation (RCG) surged to a record high on expectations of broker earnings upgrades following news that the group has acquired two businesses.

Management has upped its 2013-14 full year earnings per share (EPS) growth guidance to 15% from 10% after it bought the Saucony wholesale and distribution business and the Podium Sports retail chain.

The stock rallied 8.3% to 78.5 cents as analysts polled on Bloomberg have only factored in an 8.3% improvement in adjusted EPS to 4.7 cents.

This puts RCG on a 2013-14 price-earnings multiple of 15.7 times after today’s strong price gain, and brokers are likely to lift their EPS estimates by another 10% to around 15% for the following year, which implies a relatively modest P/E of 13.7 times.

RCG will issue 8.69 million shares at 68.3 cents to the vendors of both businesses and will pay approximately $2.95 million in cash to seal the deal.

No shareholder approval is required, and it is hard to think that shareholders would be against the transaction.

RCG is the best performing Uncapped 100 stock.