An Even Sharper Edge On Gillette

Alot is riding on the new Mach 3 razor from Gillette (G): Will it deliver the goods for this consumer-products leader? Gillette started shipping the Mach 3 on June 26. And early indications are that consumer response is better than expected, according to some pros. Gillette stock, which had been marking time at around 55 a share in early June, had crept up to 61 by July 7.

"Mach 3 is going to be a super product and huge winner for Gillette," argues Lew Rabinowitz, president of New York's R. Lewis Securities, whose bets on Pfizer, Viacom, and Time Warner in the past 18 months have produced outsized gains for his portfolio. Rabinowitz says that the Mach 3 has yet to stir up much excitement among the company's investors. But the enthusiasm among consumers so far, he says, is making some Gillette watchers more bullish on the stock.

One of them is Andrew McQuilling, an analyst at investment firm Schroder & Co. Mach 3 is as big an improvement as the Sensor was in 1990, he says. It should ensure "healthy results" for Gillette's razor-blade division for the coming five years, he adds.

He acknowledges that the Mach 3 will be a "central controversy" for Gillette investors and that the early figures on sales--and on cannibalization of other Gillette razors--will affect the stock price. But McQuilling believes that "earnings should surprise on the upside in 1999," if Gillette reaches its Mach 3 targets. The analyst says unit sales so far are "better than Schroder's forecast."

McQuilling says Gillette should earn $1.45 a share this year and $1.73 in 1999, up from last year's $1.24. The figures are adjusted for a 2-for-1 split that took place in June.

Although the stock trades at a price earnings ratio of 39, based on the 1998 estimate, Rabinowitz believes Gillette is still undervalued. Given Mach 3's potential and Gillette's world leadership in razor blades--and in alkaline batteries--the stock should hit 80 in a year, he says.

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