Gibson's Message Is Still Sweet

Investors in Gibson Greetings, the nation's third-largest greeting-card maker, hardly had time to run for cover when the aftershock from the Phar-Mor fiasco hit. The drugstore chain was Gibson's biggest customer, accounting for 13% of its sales. So Gibson's stock quickly tumbled from nearly 25 in early August to 18 on Aug. 18--the day Phar-Mor filed for protection under Chapter 11. Some pros, though, have refused to dump Gibson.

"We took the opportunity to load up some more on Gibson shares," says Ed Walczak, chief investment officer of Vontobel USA, a unit of the Swiss bank Vontobel. He thinks the market has overreacted to the Phar-Mor news. Even in a worst-case scenario, Walczak says, the stock would still be worth 30. He figures that even if Phar-Mor were to shut down, Gibson's earnings would likely drop to $2 a share this year, then probably inch up to $2.20 in 1993, vs. estimates before the Phar-Mor news of $2.65 and $3, respectively.

Walczak notes that earnings of the average company in the S&P 500 are growing at 8% and selling for twice book value. Also, it's trading at around 16 times 1993 earnings and has a debt-to-capital ratio of 40%. But check out Gibson: Its earnings have also been growing at 8%, but the stock is selling at just one times book and trades at an 8.6 p-e. And with its debt-to-equity ratio of just 20%, Gibson doesn't deserve such a depressed valuation, insists Walczak. It warrants a p-e of at least 12.8, or 80% of the market's 16 p-e, he argues, which should kick up the stock to 30 a share. Despite the Phar-Mor scare, he says, Gibson "is in a relatively predictable, stable business."

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