Inside Wall Street
SCOTT PAPER MAY BE READY TO ROLL
Most investors think Scott Paper belongs in the doghouse. But money manager Elizabeth Vale of CoreStates Investment Advisers, which manages some $8 billion, disagrees. She has been snapping up shares because she believes this maker of toilet tissue as well as printing and book paper has hit bottom in both its stock price and earnings.
True, Scott was a big loser in 1990, when it fell 21%, and again in 1991, when it slid 8%. And although Scott joined the paper group and other cyclicals when they rallied earlier this year, the stock is back in the cellar, down to 39 a share from 46 in mid-April.
Based on the turnaround she sees, Vale figures Scott is well worth 55 to 60 a share. The stock's recent decline was due to the drop in coated-paper prices. Coated paper is important to Scott because its S.D. Warren coated-paper unit is expected to account for about 25% of 1992 earnings. Some paper analysts, however, believe coated-paper prices are bound to recover soon, noting that prices have already declined some 20% this year. "This is below the expected bottom for coated paper and should be near the low," says Vale. She sees no new capacity coming on stream anytime soon.
The weak demand for paper, caused in part by low advertising volume, is expected to improve as the economy rebounds. The election, plus the summer Olympics, should spur ad demand, and Vale believes paper prices will also rise as the economy improves. Procter & Gamble has already hiked prices for consumer paper products this year, she notes. She expects Scott to earn $2.60 a share this year and $3.75 next year, up from last year's $1.54.Gene G. Marcial