(MONEY Magazine) – SUNBEAM NYSE, $46; 0.1% YIELD

After taking over as Sunbeam's CEO in July 1996, Al Dunlap followed his usual script. He slashed 6,000 jobs, shut down dozens of facilities and departments and drove up the company's share price--from $12.50 the day he took office to as high as $52 on March 4. Then, instead of selling the revamped company, "Chainsaw" Al surprised everyone in March by signing a new three-year contract and announcing plans to build Sunbeam into a consumer-durables giant. Will Al's Act II prove as rewarding for investors as Act I?

Dunlap's goals are lofty: He wants to double Sunbeam's revenues to $2 billion, achieve 20% operating margins (up from 0.2% two years ago) and sustain return on equity at the current 25%. Analysts generally applauded his first step--agreeing to pay $2.5 billion for Coleman, which makes camping gear; First Alert, which makes smoke detectors; and Signature Brands, known for its Mr. Coffee coffeemakers. The three add dozens of well-known consumer goods to Sunbeam's product line. That's important because Sunbeam's customers, "big box" merchants like Wal-Mart, K Mart and Target, prefer to deal with fewer vendors who can sell them more household-name products.

Signature's Mr. Coffee, for instance, returns Sunbeam to the $500-million-a-year coffeemaker market it all but abandoned 15 years ago. First Alert makes Sunbeam a major player in home security, thanks to its smoke and carbon-monoxide detectors, which enjoy 75% market share. And Coleman greatly expands Sunbeam's outdoor lines, including barbecue grills, where Sunbeam already owns 45% of the market. What's more, Coleman's established distribution channels should help Sunbeam break into Europe and Asia, where it has almost no presence.

But there are still some problems with the acquisitions. CIBC Oppenheimer analyst Scott Graham notes that after the deals are completed, Sunbeam's long-term debt will exceed a worrisome 50% of total capital. Moreover, even though an expanded product line gives Sunbeam more leverage with retailers, it does not guarantee a big boost in overall sales. "What Wall Street doesn't understand is that retailers have separate buyers for toasters and coolers," says Boca Raton, Fla. retail consultant Carol Farmer. "If the toaster buyer doesn't like your toasters, he's not going to buy from you--even if the company's cooler buyer likes your coolers."

In the next six months, expect Dunlap to do what he does best: Find whatever fat exists at Coleman, First Alert and Signature Brands--and get rid of it. Sunbeam officials say they can save at least $150 million in the near term. Much of that will come from Coleman, which has lost money for the past two years. Says Prudential Securities' analyst Nicholas Heymann: "Now Dunlap has a second company to turn around." Heymann thinks Dunlap will be successful enough to boost Sunbeam's stock price another 52% to $70 in a year. Indeed, most analysts expect Sunbeam shares--which fell 10% in March after the company warned of a possible first-quarter sales slowdown--to appreciate significantly over the next year.

But serious questions remain about Dunlap's ability to meet the very high expectations he has fostered on Wall Street. "This company makes toasters, not semiconductors," says David Alger, president of Fred Alger Management, which has sold about 1 million of its 4 million Sunbeam shares since Jan. 1. "Even the best toaster company isn't going to grow its earnings that fast." Adds McDonald & Co. analyst Justin Maurer: "The only way to sustain 20%-plus growth and operating margins in this business is to sell the company or keep buying sales." Today Sunbeam commands a price/earnings ratio of 22. If the company can't find additional acquisitions to prop up growth, however, it's unlikely to keep trading at such a high P/E. Our recommendation: Current stockholders should hang on for the short-term gain, but long-term investors should avoid the shares.