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Here's Why Shares of Raven Industries, Inc. Soared 14% in November

By Scott Levine – Updated Dec 11, 2017 at 8:16AM

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Bad weather may devastate some businesses, but for others it can be a boon.

What happened

Extending the 27% climb they experienced through the first 10 months of the year, shares of Raven Industries (RAVN) rose 14% in November, according to S&P Global Market Intelligence in response to the company's third-quarter earnings report for fiscal 2018.

So what

In part because of extensive hurricane relief efforts, Raven reported strong top-line growth -- about 40% year over year -- during the third quarter. According to the company, revenue from hurricane recovery film typically accounts for less than $2 million on an annual basis; however, in the recently completed third quarter, sales of recovery film totaled $8.4 million. This translated to increased profitability as well. Increasing 141% year over year, operating income was $17.8 million for Q3 while net income increased 109% to $12 million during the same period.

A seated investor looks at a rising financial chart.

Image source: Getty Images.

Besides the impressive financial performance, investors also took delight in the continued execution of Raven's stock-buyback initiative. During the third quarter, Raven repurchased approximately 350,000 shares for $10 million. Over the past three years, Raven has reduced its share count by 6%, and it has plans to reduce it even further in the future. Moving forward, management plans to spend another $53 million on its share-buyback program.

Looking to streamline the company's operations, management announced the launch of Project Atlas, a companywide initiative to increase efficiencies. According to management, Project Atlas will "enable faster integration of future acquisitions, automate a significant portion of internal controls, and enhance the enterprise's execution of its long-term growth strategy." Although the initiative added $0.3 million to the company's corporate expenses in the recently completed quarter, management expects Project Atlas to account for $1 million in corporate expenses for each quarter in fiscal 2019.

During the quarter, Raven also closed on its acquisition of Colorado Lining International, a provider of geomembrane solutions. Although it was not accretive to earnings in Q3 and is expected to contribute slightly to earnings in fiscal 2018, management foresees CLI contributing approximately $0.05 per share to earnings in fiscal 2019.

Now what

Although Raven forecasts approximately $8 million to $9 million in sales of hurricane recovery films in the fourth quarter, it's important to remember that this isn't likely to be a consistent driver of revenue growth. Consequently, investors should monitor the company's other segments -- applied technology and Aerostar -- to obtain a comprehensive view of the company's overall financial performance. In addition, investors should look for the company to improve its operating margin, confirming the success of Project Atlas. 

Scott Levine has no position in any of the stocks mentioned. The Motley Fool recommends Raven Industries. The Motley Fool has a disclosure policy.

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