Call it the Comeback Kid: After four years of red ink, Gaylord Container (GCR) will be in the black this year. Analysts have been raising their 1995 and 1996 earnings estimates, but Gaylord, a producer of linerboard and containerboard, may exceed even those revisions, say several big stakeholders.

That's not the only reason investors have been accumulating stock. They say a major paper and forest-products company has been doing homework "in preparation for making a buyout offer for Gaylord," whose shares trade at 10. These pros put Gaylord's takeover value at 20, based on a business pickup--fueled by firming prices and increased demand.

"Gaylord is a pure play in linerboard and containerboard," says one big investor. He notes that several paper companies have been filling billion-dollar war chests for acquisitions. At 20 a share, Gaylord's price tag would be $1.2 billion. "Almost all the industry biggies want to be larger players in linerboard and containerboard, too," this pro says.

One big stakeholder notes that Gaylord, despite recent dire straits, is rebounding smartly, with strong earnings growth (chart). On the other hand, Gaylord's stock is selling at "very cheap price-earnings and price-to-cash-flow ratios," he adds. The stock is trading at 3.7 times the 1995 profit estimate, vs. an average p-e of 8.4 for its peer group, and 3 times the 1996 projected earnings, vs. 6.2 for the group.

This pro figures Gaylord will earn $2.69 a share this year, $3 in 1996, and $3.65 in 1997--way above analysts' estimates. According to Zacks Investment Research, the mean estimates are $2.29 for 1995 and $2.69 for 1996.

Linda Lieberman, an analyst at Bear Stearns, rates the stock an "attractive" buy on fundamentals alone. Her target for the stock price on that basis is 15 to 17 a share. Of note, she says, is the way the company has been paying off debt: In the past two months, Gaylord has paid down $40 million of its bank term loan, and a total of $73 million since January. Gaylord, she notes, has long-term debt of $645 million. Gaylord says it doesn't comment on rumors.

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