American Pacific Corporation (NASDAQ:APFC)

Over the past 2 years has APFC has executed a business plan to reduce debt and divest non-core operations and has significantly improved its balance sheet by recently completing the redemption of $40 million of its total high interest debt of $105 million. The Company is engaged in efforts to further reduce interest costs and improve its balance sheet by replacing the remainder of the high interest rate debt with much lower interest rate bank financing. By our estimation, debt reduction initiatives should lead to annual interest expense savings of around $1 million or $0.14 per share. Additionally, the company has grown its sales and EPS for 5 straight quarters. The company is solidly profitable and is projecting 2012 adjusted EBITDA to reach $36 million (up 26% from 2011) or $4.7 per share. Analysts expect the company’s EPS to rise 20% to $1.17 (we don’t think this estimate takes into account interest expense savings). Applying a P/E of 15x2013 estimates we think the stock could trade around $17.50. On the high end we think the stock could trade at 5x adjusted EBITDA per share or $23.50. A fund that owns a larger percentage of APFC is putting pressure on management to enhance shareholder value. This could inspire management to step up its restructuring initiatives. We will have more confidence in our targets once we interview management to determine if the company can reverse its prior history of inconsistent growth.