A Chic Bargain In Leslie Fay?

Investors have cut out of retailing stocks, spooked by the weak economy and the Chapter 11 filings by such department-store giants as R.H. Macy and Carter Hawley Hale. So it is no surprise that Leslie Fay, a major supplier to department stores of women's dresses and sportswear, is down on the floor, too. Its stock has fallen to 14 a share from its high of 23 in February. But not everyone has counted out Leslie Fay. Some value players have started buying in.

One of them is money manager Ed Walczak, chief investment officer in the U.S. of Vontobel, the Swiss bank with assets of $17 billion. "The stock has become a classic, conservative value situation, where the rewards far outweigh the risks," says Walczak. He's convinced the company is well on its way to an earnings turnaround. With cash flow exceeding requirements for capital spending, Leslie Fay has been paying down debt--reduced from 40% of capital last year to 28% this year, notes Walczak.

The stock currently trades at a depressed price-earnings multiple of 9, notes Walczak. Based on his estimates of $2 a share this year and $2.20 next year vs. 1991's $1.90, he sees the stock rising to at least 20 by yearend.

Analyst Alice Beebe Longley of Donaldson, Lufkin & Jenrette Securities also likes Leslie Fay. "The company has earnings gains ahead of it that aren't yet reflected in the stock," she says. "When consumers become more confident, department stores will enjoy a rebound that will benefit Leslie Fay, probably in 1993," she says. Apparel and textile stocks, she feels, will begin to excel again no later than November.