Tags: Staples | growth | opportunities | SPLS

Staples Has Good Grip on Growth Opportunities

By    |   Thursday, 19 Apr 2012 03:35 PM

Staples (SPLS) is a well-known brand in the big-box retail space, which has come under pressure from Internet sales, notably at its counterpart in the electronics area, Best Buy (BBY). Nevertheless, analysts point out, the office supply giant seems to have a good grip on growth opportunities, including online and delivery, even as its seeks to expand abroad.

Staples is a retail office products company that helped launch the office superstore concept after opening its first store in Brighton, Mass. in 1986. The company has grown to serve North America, Europe, Australia, South America and Asia.

Staples has three business segments: North American delivery, North American retail, and international operations. It has contract, catalog, online and retail store customers. The contract business targets mid-size businesses and organizations with 20 to 500 office workers as well as Fortune 1000 companies.

Online and catalog customers are generally small businesses and organizations with up to 20 office workers. The retail stores target small businesses, home offices and consumers. In 2008, Staples acquired Corporate Express and has merged its operations with the contract ordering web site StaplesAdvantage.com.

North American Delivery consists of the U.S. and Canadian business units that sell and deliver office products and services directly to businesses and consumers, and includes Staples Advantage, Staples.com and Quill.com. “The majority of our delivery customers place their orders online, making Staples the second-largest Internet reseller in the world,” management told investors in a recent filing.

North American retail consisted of 1,583 stores in the United States and 334 stores in Canada at the end of fiscal 2011, as well as 26 stand-alone copy and print shops. Staples expects the store count to be flat in 2012 in North America.

International operations consists of businesses in 24 countries in Europe, Australia, South America and Asia. Staples has 331 stores in 16 countries in Europe. “We continue to establish a foundation for growth in Asia and South America, where our businesses are in various stages of development,” management notes, including growing presences in China, Taiwan, Argentina and Brazil. It also is expanding delivery in Australia.

Bullish


Staples is a $11.08 billion market cap firm in the specialty retail sector. The average company in that sector has a market cap of $6.27 billion.

Staples offers a trailing 12-month P/E ratio of 11.32 compared to a sector average of 19.18. Its five-year projected price-to-earnings-growth (PEG) ratio is 1.17, vs. a sector average of 18.43.

Projected earnings per share growth for the coming year is 8.67 percent, about half of the sector average.

Analysts are bullish on Staples, offering up buy or outperform calls from UBS, Standard & Poor’s Morgan Stanley, Ned Davis Research, Caris & Co. and others. Goldman Sachs has a sell call on the stock, and Merrill Lynch rates it at underperform.

“We continue to favor SPLS's management, strong balance sheet, significant free cash flow generation and cost synergies from the Corporate Express acquisition that should accrue over the next couple of years,” S&P analysts wrote on March 5.

“We also anticipate strong results for SPLS's North American Delivery division over the longer term, although we have been surprised by the severity of the recent slowdown.”

Staples next reports on May 16.

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Thursday, 19 Apr 2012 03:35 PM
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