Staples Is 30% To 50% Undervalued

| About: Staples, Inc. (SPLS)
This article is now exclusive for PRO subscribers.

Staples (NASDAQ:SPLS) looks to be the undisputed winner in the office supply store wars. It continues to take market share from Office Depot (NYSE:ODP) and Office Max (NYSE:OMX), which are beset with their own problems. Given Staples low valuation, growth prospects and dividend yield it looks to be a smart pickup for the long term investor.

7 reasons SPLS is a solid buy at under $15:

1. It appears to have put in a technical bottom in the $12 to $14 range (See Chart)

(Click to enlarge)

2. It is selling at the very bottom of its five year valuation range based on P/E, PB, P/S, and P/CF.

3. SPLS provides a solid dividend yield of 2.6%. It has used its robust cash flow to increase its dividend payments by approximately 9% a year over the last five years.

4. It is also using that cash flow to buy back stock. It should buy over $600m in stock back in FY2011.

5. Staples is the best house in a bad neighborhood and continues to take market share from Office Max and Office Depot. It has much better balance sheet and position in the office supply space than either competitor so this outperformance should continue.

6. SPLS has a forward PE of under 11 and a five year projected PEG of just over 1. It also sells at less than 7 times operating cash flow.

7. It is under key analysts’ price targets. Credit Suisse has a price target of $23 on SPLS (50% higher than its current price) and S&P has a price target of $20 on Staples.

Disclosure: I am long SPLS.