Staples Retained at Neutral - Analyst Blog
September 24 2012 - 8:47AM
Zacks
We maintain our Neutral recommendation on Staples
Inc (SPLS), with a target price of $13.00, as the
lingering macroeconomic concerns and sluggish job market continues
to deter the sales of this leading retailer of office products and
services.
However, it is encouraging to observe the company’s focus on
augmenting store productivity to generate incremental sales per
store, accelerating growth in adjacent categories, efforts towards
enhancing market share in core office supplies and streamlining its
cost structure.
As the recovery in the economy remains slow, consumers and small
businesses remain frugal about big-ticket spending like business
machines and other durables. Therefore, we believe that the demand
for office products is likely to remain soft as performance of the
sector is correlated to the health of the economy.
Consequently, Staples is making investments in the highly
fragmented North American retail market to expand its business
technology, and copy and print services that generate higher profit
margins.
Moreover, the company is focusing on innovative products and
services and has entered into a partnership with Martha
Stewart Living Omnimedia Inc (MSO) and Avery
Dennison Corporation’s (AVY) office and consumer products
group for retailing a new line of products.
Further, Staples has been actively managing its cash flows,
returning much of its free cash to shareholders via dividend and
share repurchases. During the second quarter of 2012, Staples
repurchased 12.1 million shares for $159 million, and in the
26-week period ended July 28, 2012, distributed $148.5 million
through cash dividends. Management now expects to generate free
cash flow of over $1 billion in fiscal 2012.
However, the company faces stiff competition from office supply
retailers, such as OfficeMax Inc. (OMX) and
Office Depot Inc. (ODP), and warehouse clubs such
as Costco Wholesale Corporation (COST), discount
stores, mass merchandisers such as Wal-Mart Stores
Inc (WMT), computer and electronics superstores on
attributes such as store format, pricing strategy and in-stock
consistency. This may weigh upon the company’s results.
Currently, Staples holds a Zacks #4 Rank, which translates into
a short-term Sell rating as the sluggish macroeconomic environment
acts as short-term deterrent.
AVERY DENNISON (AVY): Free Stock Analysis Report
COSTCO WHOLE CP (COST): Free Stock Analysis Report
MARTHA STWT LIV (MSO): Free Stock Analysis Report
OFFICE DEPOT (ODP): Free Stock Analysis Report
OFFICEMAX INC (OMX): Free Stock Analysis Report
STAPLES INC (SPLS): Free Stock Analysis Report
WAL-MART STORES (WMT): Free Stock Analysis Report
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