Shares of RC2 Corp. rose on Tuesday following news that the toy maker will pay $163 million for the children's publishing division of privately held Publications International Ltd.
The stock rose 79 cents, or 4.5 percent, to $18.25.
RC2 said the purchase, which is expected to close in July, is part of a plan to diversify its business.
Robert W. Baird & Co. analyst J. David Cumberland, who rates the stock "Neutral," expects the purchase to boost earnings by 15 cents to 20 cents per share in 2008 and 30 cents to 40 cents in 2009.
"We are confident in RC2's ability to achieve intended targets based on management's solid record of acquiring and integrating companies," Cumberland wrote in a client note.
Overall, Cumberland expects new product releases, stronger margins and buybacks to boost sales and earnings over the next several years.
Cumberland's "Neutral" rating is based partly on higher competition and the impact of recalls on sales.
In September, RC2 recalled at least 200,000 railway toys and accessories that it said may contain dangerous levels of lead paint. Last June, the company recalled 1.5 million Thomas & Friends Wooden Railway toys.
Separately, PiperJaffray analyst Anthony N. Gikas upgraded the stock to "Buy" from "Neutral" and said the acquisition is a "good strategic fit" with the company's existing business lines.
Gikas said his upgrade is also based on improving fundamentals and valuation. Shares of the company have declined 37.8 percent so far this year.
Gikas's $23.50 price target, raised from $18, implies upside of 34.6 percent to Monday's closing price of $17.46.
RC2's brands include Learning Curve, Thomas & Friends railway toys, John Deere toys, and Battle Wheels, among others.
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