Boise Trades Forest for Jungle

With Boise (BCC) preparing to abandon its 47-year-old timber business to become an office supply chain, investors will be studying the stock under a new lens when it reports third-quarter earnings Tuesday.

After the sale of its forest products business is completed later this year, the former Boise Cascade will adopt the name of its recent acquisition, OfficeMax, and take on the likes of Staples (SPLS) and Office Depot (ODP) in a highly competitive industry where tight battle lines are already drawn.

In the meantime, the stock is in limbo on Wall Street, as Boise's old analysts turn over coverage to the retail crowd. Complicating matters, the company is in stealth mode, refusing to comment for this story while it works on its transition.

Still, a handful of observers are making a case that shares are undervalued.

At $33.77, Boise is trading in the middle of its 52-week trading range, about 13 times earnings estimates through December 2005. That's well below the office supply heavyweight, Staples, at 17.8 times earnings by the same measure. But it's higher than the industry's No. 2 player, Office Depot, at 11.7.

Lehman Brothers analyst Peter Ruschmeier argued in a recent research note that Boise could jump to $40 by the end of the year after the convergence of several positive catalysts on the way.

"We believe our $40 target price could be reached soon after the planned sale of [Boise's] forest product assets and during the transition of coverage from forest product to retail analysts," Ruschmeier wrote. (Lehman owns shares of Boise and has received non-investment banking-related compensation from it in the last year.)

The first impending change to the stock's valuation will come with the sale of the timber operations to Madison Dearborn Partners, a private equity group. The deal, expected to be finalized in November, will result in a $3.7 billion windfall for OfficeMax (by Ruschmeier's estimate). The company will shed nearly all its debt and pay out about $950 million in share repurchases or dividends.

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