Rocky Shoes' Knockout Punch

One reason for subscribing to the Motley Fool Hidden Gems newsletter is that smaller companies can transform themselves overnight. Case in point: Rocky Shoes and Boots (Nasdaq: RCKY  ) -- although it is not one of the newsletter's picks.

Last night the company announced it would double its size by acquiring debt-free EJ Footwear for $87.7 million in cash and roughly $10 million in stock. EJ will bring the Georgia Boot, Durango, and Leigh brands into Rocky's fold and add such high-profile licensed footwear names as Dickies and John Deere.

The big news is this acquisition's impact on the company's earnings. Analysts were expecting $1.93 per share for 2005. Rocky is telling investors that it expects earnings to increase to the range of $2.35 to $2.45 a share in 2005. Now that's an accretive acquisition!

Also good news is the company's statement: "We have the ability to leverage our platform across all of their (EJ's) businesses to drive synergies, realize operating efficiencies and accelerate growth into the future."

Growth and better operating efficiencies are the hallmarks of a good investment.

The stock is hot today -- soaring over 27%, but it is still selling for only 13.5 times 2005 earnings. Rocky was selling for 15 times earnings yesterday! Competitors Timberland (NYSE: TBL  ) and Wolverine World Wide (NYSE: WWW  ) sell, respectively, for 14 and 16 times forward earnings -- and trendy Deckers Outdoor (Nasdaq: DECK  ) sells for 20 times forward earnings.

Rocky could get a case of cement shoes once it increases its current debt load of $33 million by more than $100 million. But if it can grow and improve margins, it will prove to be an excellent long-term investment at today's prices.

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Fool contributor W.D. Crotty does not own stock in any of the companies mentioned.