Piper Jaffray Downgrades OfficeMax (OMX) to Neutral

July 9, 2008 8:18 AM EDT

Piper Jaffray downgrades OfficeMax (OMX) from Buy to Neutral and lowers their price target from $22 to $11. The firm also lowers their FY08/09 EPS estimates from $1.85/$2.07 to $1.69/$1.76.

The firm said, "We are reducing our rating on shares of OMX after the negative Q2 pre-announcement from competitor Office Depot (NYSE: ODP) who cited sales weakness at its retail stores with trends worsening late in the quarter. While we believe OMX is a better company with better margin stability, we believe industry fundamentals for office product retailers are continuing to deteriorate."

The firm's Buy rating was based upon valuation and due to the turnaround potential that could lead to expanding operating margin. However, executing a turnaround is much more difficult in the current macroeconomic environment while the company’s operating margin is starting to drift back down.. In addition, the firm believes that investors should stay on the sidelines until either "a) operating margin begins to stabilize or b) the company begins utilizing some of its free cash flow to buy back stock, thereby reflecting its belief in the value of its shares."

OfficeMax Incorporated is a leader in both business-to- business office products solutions and retail office products.

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