OfficeMax Slides to Neutral - Analyst Blog
December 10 2012 - 3:40AM
Zacks
We recently downgraded our
recommendation on OfficeMax Incorporated (OMX) to
Neutral with a price target of $10.00, following its soft
third-quarter 2012 top-line performance. Earlier, we had an
Outperform view on the stock.
We remain concerned about the
macroeconomic environment, with small businesses and consumers
remaining watchful on their spending. We adopted a cautious view on
the stock given the company’s struggling top line that dropped for
the second consecutive quarter.
After declining 2.7% in the second
quarter of 2012, OfficeMax’s total revenue dropped 1.7% year over
year to $1,744.6 million in the third quarter and also fell short
of the Zacks Consensus Estimate of $1,781 million. Contract segment
sales dipped 0.3%, whereas Retail segment sales declined 3.1%.
Sales for 2012 are projected to be
lower than the prior year, including the negative impact of foreign
currency translation and excluding the extra week in 2011, which
resulted in incremental sales of about $86 million. The office
supplies retailer now expects fourth quarter sales to remain even
with or marginally down compared with the prior-year period,
including the favorable impact of foreign currency translation.
However, we observe that
OfficeMax’s bottom line continues to perform well. With respect to
earnings surprises, the company has topped the Zacks Consensus
Estimate over the last four quarters in the range of 3.9% to 71.4%.
The average remained at 31.3%, suggesting that OfficeMax has
outpaced the Zacks Consensus Estimate by that magnitude in the
trailing four quarters.
OfficeMax posted third-quarter 2012
earnings of $0.27 per share that beat the Zacks Consensus Estimate
by a penny, and rose 8% from the prior-year quarter on the back of
effective cost management and improved operating margins.
The company is repositioning itself
to keep afloat in a difficult consumer environment. OfficeMax is
containing costs, closing underperforming stores and focusing on
providing innovative products and services, which should all
contribute to margin improvement. The company should gain from
recent growth initiatives, which include the ImPress copy and print
and Ctrlcenter PC services, janitorial and sanitation supply,
category management, and managed print businesses. The company’s
digital as well as technology and document solutions are also
gaining traction.
Given the pros and cons, we prefer
to have an unbiased view on the stock. Moreover, OfficeMax, which
competes with Office Depot Inc. (ODP) and
Staples Inc. (SPLS), holds a Zacks #3 Rank that
translates into a short-term ‘Hold’ rating.
OFFICE DEPOT (ODP): Free Stock Analysis Report
OFFICEMAX INC (OMX): Free Stock Analysis Report
STAPLES INC (SPLS): Free Stock Analysis Report
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