Will Staples (SPLS) Stock Drop on Customers’ Antitrust Concerns?

Staples’ (SPLS) corporate customers raised antitrust concerns over the company’s planned $6 billion acquisition of Office Depot (ODP).
By Amanda Gomez ,

NEW YORK (TheStreet) -- Several corporate clients of Staples (SPLS) are scrutinizing the proposed $6.3 billion acquisition of Office Depot (ODP), the New York Post reports.

Unnamed large corporate customers have reportedly expressed concerns to federal regulators over Staples' plans to divest assets, which may not be enough to maintain competition in the segment.

Last week, Staples' offered to transfer contracts worth about $600 million to Essendant (ESND) to gain regulatory approval for the deal.

The Federal Trade Commission may seek to block the acquisition in the next few weeks, a source told the Post.

Office Depot's North American business solutions division accounted for 37.4% of total sales in fiscal 2014, with about $6.01 billion in sales.

Staple's North American commercial sales accounted for 36.8% of sales in the 2014 fiscal year, with sales totaling $8.27 billion.

Staples stock is rising 0.29% to $12.15 in afternoon trading on Thursday.

Separately, TheStreet Ratings team rates STAPLES INC as a Hold with a ratings score of C. TheStreet Ratings Team has this to say about their recommendation:

We rate STAPLES INC (SPLS) a HOLD. The primary factors that have impacted our rating are mixed - some indicating strength, some showing weaknesses, with little evidence to justify the expectation of either a positive or negative performance for this stock relative to most other stocks. The company's strengths can be seen in multiple areas, such as its good cash flow from operations and largely solid financial position with reasonable debt levels by most measures. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and a generally disappointing performance in the stock itself.

Highlights from the analysis by TheStreet Ratings Team goes as follows:

  • Net operating cash flow has significantly increased by 100.00% to $0.00 million when compared to the same quarter last year. In addition, STAPLES INC has also vastly surpassed the industry average cash flow growth rate of -11.31%.
  • SPLS's debt-to-equity ratio is very low at 0.21 and is currently below that of the industry average, implying that there has been very successful management of debt levels. Although the company had a strong debt-to-equity ratio, its quick ratio of 0.72 is somewhat weak and could be cause for future problems.
  • SPLS, with its decline in revenue, underperformed when compared the industry average of 8.6%. Since the same quarter one year prior, revenues slightly dropped by 5.4%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • The company, on the basis of change in net income from the same quarter one year ago, has significantly underperformed when compared to that of the S&P 500 and the Specialty Retail industry. The net income has significantly decreased by 56.0% when compared to the same quarter one year ago, falling from $81.88 million to $36.00 million.
  • Current return on equity is lower than its ROE from the same quarter one year prior. This is a clear sign of weakness within the company. Compared to other companies in the Specialty Retail industry and the overall market, STAPLES INC's return on equity significantly trails that of both the industry average and the S&P 500.
  • You can view the full analysis from the report here: SPLS

Any reference to TheStreet Ratings and its underlying recommendation does not reflect the opinion of Jim Cramer, TheStreet or any of its contributors.

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