Wednesday, December 07, 2011

Staples (SPLS) 2011 Review

Staples (SPLS) is one of the largest office supply superstore chains in the US, Europe, Asia and South America (1900+ stores).

SPLS also sells its branded products in over 2400 grocery stores in the US. In the past five years, the company has grown profits at a 5% pace, earning a return of equity in the 12-18% area. In 2004, it initiated a dividend and has since more than tripled it (27% AR). While SPLS did not escape the impact of the recent economic down turn, it should resume its long term growth as a result of:

(1) as an industry leader, it is positioned to sustain above average growth due to better margins and its effective merchandizing skills,

(2) new products,

(3) new store expansion,

(4) improving same store sales by expanding its business technology and copy and print services,


(1) it is in a highly competitive industry,

(2) sluggish demand due to the recent global slowdown,

(3) its foreign operations expose it to the risks of currency fluctuations.

SPLS is rated A+ by Value Line, carries a 20% debt to equity ratio and its stock yields 3.1%.

Statistical Summary

Stock Yield Dividend Growth Rate Payout Ratio # Increases Since 2004
SPLS 3.1% 9% 28% 6*
IND 1.7 1** 32 NA

Debt/Equity ROE EPS Down Since 2001 Net Margin Value Line Rating
SPLS 20% 14% 2 4% A+
IND 52 15 NA 4 NA

*SPLS initiated its dividend in 2004
**over one half of SPLS competitors don’t pay a dividend


Notes: SPLS stock recovered quickly following the March 2009 low, though it has never successfully surpassed the down trend off its January 2007 high (red line) nor the November 2008 trading high (green line). The stock is in a long term trading range--the straight blue line is the lower boundary. There is no other discernable trend. The wiggly blue line is on balance volume. The Aggressive Growth Portfolio owns a full position in SPLS; however, the bulk of the stock was purchased recently when it went on the Aggressive Growth Buy List. SPLS is currently on our Buy List. The lower boundary of its Sell Half Range is $25.