Last week, Staples (NASDAQ:SPLS) announced a $1.5 billion stock buyback, which reinforces our current positive position on this company.
Staples is one of the largest office supply superstore chains in the US (1300+ stores); and it has operations in the U.K., Germany and the Netherlands. In the past five years, the company has grown profits at an 18% pace, earning a return of equity in the 18-20% area. In 2004, it initiated a dividend and has since more than doubled it.
North American operations should continue to grow at an above average pace as a result of (1) new store expansion, (2) improving same store sales which will benefit from an expanding higher quality line of private label goods and more emphasis on its copy centers and (3) rapid growth in its business that directly supplies large institutions.
SPLS’s foreign profits will be helped as a result of a recent program that remodeled its stores and consolidated warehouses.
In addition, the company is planning expansion into China, India and South America.
Our current Buy Range for Staples’ stock is $23-26 a share.
We have a Stop Loss at $20 and would take profits at $31.
EPS: 2006 $1.28, 2007 $1.45, 2008 $1.70
Disclosure: Author has a long position in SPLS
SPLS 1-yr chart