Getting ahead of the pack with Staples

Posted Apr 21st 2008 6:06PM by Joseph Lazzaro
Filed under: Staples Inc (SPLS), Stocks to Buy

Readers of this space know that, given the uncertainties regarding U.S. economic growth, household formation, and job creation, the retail sector is to be avoided. Still, there are exceptions -- particularly when the fundamentals suggest it's a decent time to get-ahead-of-the-pack with a company -- and with the aforementioned in mind, Staples is worth a review.

In general, analysts don't forecast anything spectacular about Staples, Inc. (Nasdaq: SPLS) FY 2009 North American retail sales, which should decline 1-3%

Still, there are bright spots that provide cause for hope: strong results from the North American delivery division's Chicago, Denver and Miami regions point to untapped domestic metropolitan area opportunities.

Further, margins should widen as SPLS's ramping private-label business comprises a larger percentage of sales.

Finally, longer term, South America and China should provide investors with the more-robust sales gains they seek. The Reuters FY 2009/FY 2010 EPS consensus estimates for SPLS are $1.50 to $1.71

The First Call mean rating for SPLS is: Buy [13 firms]. Mean 2008 target: $27 [high: $31, low: $21].

The risks? A sustained U.S. economic recession would substantially hurt SPLS's results. Analysts are also keeping an eye on Staples' new store opening timetable.

Stock Analysis: Staples is a moderate-risk stock not suitable for low-risk investors. Investors with an investment horizon longer than 2 years should be rewarded from SPLS's shares. Sell/Stop Loss if you were to purchase shares in this company: $17.

Disclosure: Lazzaro has no positions in stocks. In addition to private real estate holdings, he owns corporate and municipal bonds, and cash certificates of deposit.

Tags: office supplies, retail, same store sales, SPLS, Staples