Gillette's New Edge

When Gillette (G ) came up at a recent dinner with Street pros, one fund manager snapped: "Gillette? Nobody cares about that dog." Once a blue-chip darling, Gillette quickly became an outcast after it began falling short of analysts' expectations in 1999. Bloated inventories and spiraling costs hurt sales and earnings. Gillette shares peaked at 64 in early 1999 and then tumbled to 24 by 2001. They have picked up strength this year, rising to 34.85 on Apr. 17. The Street is still down on the razor king. Only 5 of the 17 major analysts who track Gillette rate it a buy.

But several smart-money players have been snapping up shares. One early bullish backer is Kevin Lane, chief market strategist at Technimentals Research Group, who was among the first to warn about negative stock action in Tyco International and IBM. Now he is bullish on Gillette--on technical and fundamental grounds. He sees strong accumulation trends that suggest to him that the stock will hit 45 in six to nine months. And Lane says restructuring and management changes have brought severe cost-cutting that should win Street converts. The dollar, he adds, "is weakening, which will benefit Gillette greatly," since more than half of sales come from overseas. William Steele of Banc of America Securities, who rates Gillette a buy, says record fourth-quarter cash flow clearly shows progress in its financial turnaround. Steele sees Gillette earning $1.16 a share in 2002 and $1.32 in 2003, vs. 2001's 99 cents. The stock is trading at 26.5 times the 2003 estimate; its price-earnings ratio in 1999 was 55.5. Ken Nugent of Value Line says Gillette benefits from the continuing success of its MACH3 and Venus razors and the relaunch of Duracell batteries. He notes another reassuring sign: Gillette ads have reappeared.

By Gene G. Marcial

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