SPLS: Selling Staples Is an Easy Choice

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Shares of Staples, Inc. (SPLS) rallied after the office supply retailer beat estimates for the third quarter. After months of underperforming the competition, is this a sign that Staples has finally made a turnaround?

Staples – Company Overview

staples spls stockWith $24 billion in yearly sales and 2,200 stores across 26 countries, Staples is the world’s largest office products chain. Staples is known for its slogan “That was easy,” but as you’ll see momentarily, Staples has had a less than easy time getting its finances on track.

Staples – Earnings Rundown

Staples posted $216.79 million in net income on $5.96 billion in sales for the third quarter. Compared with Q3 2013, this represents 61% annual earnings growth but a 2.5% year-on-year decline in sales. Adjusted earnings were 37 cents per share, which topped the consensus earnings estimate by a penny.

Analysts were also looking for $5.93 billion in revenue. So, Staples posted a modest sales surprise. Looking ahead to the fourth quarter, management anticipates earnings in a range of 27 cents to 32 cents per share and lower sales, which is on the lower end of the Street view of 31 cents per share.

Investors are celebrating the Q3 results, but I don’t see Q4 being a blowout quarter for Staples.

Staples – Current Ratings

For the past 10 months, Staples stock has languished at a “sell,” and it’s easy to see why. For starters, buying pressure could hardly be lower for Staples stock. So, Staples receives a “D” for its Quantitative Grade.

On the fundamentals side, Staples pulls off decent cash flow (B) and return on equity (B). However, the other six metrics don’t measure up, especially sales growth (D), earnings growth (D) and earnings momentum (F). SPLS receives a “C” for its Fundamental Grade, but this grade may improve once the latest earnings results have been plugged in.

I consider SPLS a “D-rated sell.” There’s a slim chance that I’ll upgrade SPLS to a “C” this weekend, but I wouldn’t count on anything higher for some time.

Louis Navellier is a renowned growth investor. He is the editor of five investing newsletters: Blue Chip GrowthEmerging GrowthUltimate GrowthFamily Trust and Platinum Growth. His most popular service, Blue Chip Growth, has a track record of beating the market 3:1 over the last 14 years. He uses a combination of quantitative and fundamental analysis to identify market-beating stocks. Mr. Navellier has made his proven formula accessible to investors via his free, online stock rating tool, PortfolioGrader.com. Louis Navellier may hold some of the aforementioned securities in one or more of his newsletters.


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