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Inside Wall Street


Will Energizer Get Hopping?

Shares of battery maker Energizer Holdings (ENR) have lost power since hitting 113 in early 2008. Energizer, whose TV ads feature the tireless bunny, ran out of steam on Nov. 21 and tumbled to a 52-week low of 30 a share. But it bounced to 50.47 on Apr. 1 as some big investors decided that the sell-off of the stock has been way overdone.

"We consider it a timely and undervalued play on the anticipated recovery," says Mario Gabelli, CEO of Gamco Investors, which owns shares. Energizer Holdings makes the Energizer and Eveready alkaline and carbon-zinc batteries, Schick-Wilkinson Sword razors and shavers, and feminine and skin care products. In 2007, Energizer bought Playtex, a maker of feminine hygiene products. With its line of consumer goods and strong cash flow, Energizer is well-positioned to gain when the economy turns, Gabelli says. It has been buying back stock and paying down debt. Such underpriced companies in a consolidating industry usually end up as attractive targets, he says. He forecasts the company will earn $5 a share in 2009 and $6 in 2010.

Cynthia Axelrod of Glenmede Investment Management, which owns shares, says Energizer is a cheap consumer-staple stock, whose price doesn't reflect its attractive long-term prospects. She figures the stock is worth 65.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

McDonald's Is Heating Up

Even though it's a powerhouse of a global brand, McDonald's (MCD) didn't escape a walloping in the market's dive, despite good earnings growth in 2008 against a worldwide economic slump. After hitting a 52-week high of 67 last Aug. 11, its shares fell to 45 on Oct. 10. But the market's rally in recent weeks got it climbing, to 55.24 on Apr. 1.

At its current price, "McDonald's shares represent compelling value," says Paul Westra of investment firm Cowen Group (COWN), who rates it outperform. It's trading at 14 times his 2009 earnings estimate of $3.83 a share, he says, the low end of a 10-year range of 14-22, and merely in line with its poorer performing peers. The world's largest fast-food chain continues to do well despite the difficult environment, says Westra.

Mark Basham of Standard & Poor's (MHP) rates McDonald's a strong buy, with a 12-month price target of 66.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

The Shine on Collective's Shoes

Collective Brands (PSS) is hardly a household name, but Payless ShoeSource, StrideRite, Sperry Top-Sider, and Keds are among its well-known brands. Collective is holding up in the current downturn, in part because of low production costs in China, where its shoes are made, says Bruce Geller, CEO of the DGHM AllCap Value Fund, which owns shares. And while the recession has punched its retail business, the wholesale and licensing units still deliver earnings growth.

Payless, the nation's largest shoe merchant, with 5,000 stores, attracts customers with products that carry an average price tag of $15 a pair, says Geller. Collective's stock has kicked up to 9.79 a share from a 52-week low of 3.85 on Nov. 21.

Jeffrey Stein of Soleil Securities, who rates the stock a buy with a 12-month price target of 16, sees earnings of of $1.08 a share in 2009 and $1.15 in 2010.

Unless otherwise noted, neither the sources cited in Inside Wall Street nor their firms hold positions in the stocks under discussion. Similarly, they have no investment banking or other financial relationships with them.

Marcial writes the Inside Wall Street column for BusinessWeek. In 2008, FT Press published the book Gene Marcial's 7 Commandments of Stock Investing.


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