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Staples (SPLS) is a 'Self-Help' Story - Nomura

February 11, 2013 9:00 AM EST Send to a Friend
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Price: $12.03 --0%

Rating Summary:
    2 Buy, 18 Hold, 0 Sell

Rating Trend: = Flat

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Nomura Securities sharply raised its price target on Staples, Inc. (NASDAQ: SPLS) from $12 to $16 but stopped short of lifting its Neutral rating.

"Staples has begun to swallow a few bitter pills," Aram Rubinson states. He highlights that in September 2012 SPLS took a restructuring charge as it decided to close 15 US stores and 45 abroad, ultimately looking to trim its footprint by 15% or more. Staples also hired a talented executive to run International, and it refinanced $1B worth of 9.75% debt with average rates of 3.5%. Congruently, Lowe's decided to shut 20 underperforming stores a year earlier.

"We applaud SPLS for adding "self-help" as a potential catalyst for the share price," the analyst said.

"Unlike Lowe's, Staples does not have a housing rebound waiting for it on the other side. Despite that, we believe there is still some merit to the investment case. Our new target price reflects that. Long-term, SPLS will likely struggle to add value with merchandise margins at retail that are too high at ~40%. That is why we feel compelled to remain Neutral on the shares."

The firm raised FY12E EPS from $1.32 to $1.37; FY13E EPS from $1.25 to $1.41.

For an analyst ratings summary and ratings history on Staples, Inc. click here. For more ratings news on Staples, Inc. click here.

Shares of Staples, Inc. closed at $12.98 yesterday.




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