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.

Ruschmeier takes the sale proceeds, adds a residual asset value of $219 million, and adds 5.5 times estimated 2005 EBITDA, or $2.8 billion. (Office Depot trades at 5.6 times EBITDA.) Then, he subtracts $2.3 billion in debt and pension obligations, and divides by 93.9 million shares outstanding. This formula values the stock as being worth more than $40, 19% higher than its current price.

To be sure, any estimates about the future earnings of OfficeMax come with a significant amount of risk. Estimates for 2004 earnings, according to Thomson First Call, range from a high of $1.85 a share to a low of $1.15 a share. For 2005, First Call records a difference between the high and low per-share estimates of $1.87, and things only get fuzzier in 2006.

Before Tuesday's opening bell, Boise is expected to report earnings of 60 cents a share, according to analysts polled by Thomson First Call.

The company is putting all its eggs into a basket that is already crowded and threatening to get more so. Staples recently announced plans to open stores in Chicago, an OfficeMax stronghold. In fact, the dominant office supply retailer said it will open 100 stores a year in North America and 20 stores a year in Europe, many of them in areas that already have a rival's store.

Currently, Staples has almost 1,400 retail stores throughout the U.S. and Canada, and it makes up about 72% of the office supply retail market in the Northeast. OfficeMax, with about 1,000 stores in North America, makes up a majority 48% of market share in the Midwest. Office Depot has about 1,000 stores worldwide, with 900 in the U.S., and it holds a majority 42% of the market share in the South.

Some have doubts about whether OfficeMax will fare much better than Office Depot against a rapidly expanding Staples. Shares of the No. 2 office supplier, which are down over 13% on the year, got a rare boost in early October after it fired its chief executive, Bruce Nelson. That news came after the company lowered its guidance for its third quarter and the full year, following a disappointing earnings report for its second quarter.

"OfficeMax has the worst margins out of these three companies," said Anthony Chukumba, an analyst with Morningstar. "I don't think it's going to get any better given that the market is only going to get more competitive."

Still, from Home Depot ( HD) and Lowe's ( LOW) in home improvement to Wal-Mart ( WMT) and Target ( TGT) in discount superstores and Best Buy ( BBY) and Circuit City ( CC) in consumer electronics, nationwide retailers have shown that there is usually only room for two players to survive in any one space. One company is the dominant leader, while the other is the scrappy underdog. Then there are third wheels, like Kmart ( KMRT) or Tweeter ( TWTR), that often turn out to be whoofers.

While surpassing Staples remains a pipe dream for any office retailer, the No. 2 spot could be up for grabs for someone like OfficeMax, given the struggles of Office Depot.

"I think when you look at this space, OfficeMax is definitely years behind the other two as far as their transformation," said Brian Postol, an analyst with A.G. Edwards who does not yet cover Boise. "Two years ago, I would have said they don't have a fighting chance. But with Office Depot struggling, there is a slight bit of hope for them that they could battle with them and maybe overtake them."

Chukumba said Boise plans to reap $80 million to $130 million annually thanks to synergies that include its unique relationship with suppliers in its old forest products space and the consolidation of its retail operations with its corporate relationships.

"That's a very aggressive number," said Chukumba. "I don't see them getting that much."

But regardless of the company's long-term prospects, Ruschmeier and other Wall Street sources make a case that the current valuation of Boise is off kilter with the retail space that the company is poised to enter. He notes that Boise's office products business is trading at only 4.2 times estimates for EBITDA in 2005, while Office Depot is at roughly 5.6 times its own estimates and Staples is at a higher multiple.

Kimberly Bernard, an associate director with Babson Capital Management (which owns shares of Staples), said OfficeMax could be a tougher competitor for Office Depot than investors are giving it credit for.

"All the news we're hearing from Office Depot lately can only bode well for OfficeMax," Bernard said. "They look pretty vulnerable."