Staples (SPLS) Stock Tumbling on Concerns Following Sysco, US Foods Merger Ruling

NEW YORK (TheStreet) -- Staples (SPLS) stock is tumbling 4.18% to $15.93 after Sysco's (SYY) $3.5 billion takeover of US Foods was blocked by U.S. District Judge Amit Mehta in Washington on Tuesday, raising concerns that Staples could also have its $6 billion acquisition of Office Depot (ODP) halted, Bloomberg reports.

The judge said today that the merger of the food distribution giants Sysco and US Foods was stopped because it would reduce competition and raise prices, Bloomberg noted.

This block is concerning office supply companies, as Staples announced in February that it will acquire Office Depot. This acquisition will allow Staples to provide more value to customers and more effectively compete in a rapidly evolving environment, Staples' CEO Ron Sargent said. 

Following the merger agreement, Office Depot's shareholders last week said that they approved the acquisition. 

However, as the deal awaits approval from federal antitrust regulators, the question is whether increased antitrust scrutiny will make it harder for Staples to execute its deal, Bloomberg added.

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 largely solid financial position with reasonable debt levels by most measures and solid stock price performance. However, as a counter to these strengths, we also find weaknesses including deteriorating net income, disappointing return on equity and weak operating cash flow."

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

  • 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 0.78 is somewhat weak and could be cause for future problems.
  • SPLS, with its decline in revenue, underperformed when compared the industry average of 9.2%. Since the same quarter one year prior, revenues slightly dropped by 6.9%. The declining revenue appears to have seeped down to the company's bottom line, decreasing earnings per share.
  • Compared to its closing price of one year ago, SPLS's share price has jumped by 46.69%, exceeding the performance of the broader market during that same time frame. Looking ahead, however, we cannot assume that the stock's past performance is going to drive future results. Quite to the contrary, its sharp appreciation over the last year is one of the factors that should prompt investors to seek better opportunities elsewhere.
  • 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 38.7% when compared to the same quarter one year ago, falling from $96.21 million to $59.00 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 Ratings Report

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