(By Balachander) UBS Securities analyst Michael Lasser downgraded rating on shares of office products company Staples Inc. (NASDAQ:SPLS) to "Neutral" from "Buy", saying the stock presents a balanced risk-reward at the current level.
"The underpinnings of our original investment thesis were that the shares could see upside from: 1) an economic recovery, especially labor market driven; 2) industry consolidation that would benefit the market leader; 3) better performance of SPLS' international business; or 4) a more aggressive posture on its return of capital," the analyst said.
Lasser's updated view assigns a lower probability to the likelihood of these potential triggers. This limits outperformance for at least the near-term, the analyst wrote. The analyst lowered price target on the stock to $13.00 from $17.00.
Framingham, Massachusetts-based Staples provides office supplies, office machines and office furniture under Staples, Quill, and other proprietary brands.
Lasser wrote that the company has articulated a viewpoint that it will sit tight on its store base and wait for others to reduce their footprints. BBY, ODP, and OMX are on pace to close 2 stores per week this year and SPLS expects to benefit. The winner's curse might be that it will be the last one left with an obsolete asset base, he said.
"What could make us more positive: an OMX/ODP combo, a big restructuring including store changes, getting AAPL products, rationalizing its international business, or more aggressive cost reduction measures. Even if one of these outcomes occurs, the benefits will likely be quite gradual," the analyst said.
SPLS shares, which have been trading in the 52-week range of $11.94 to $16.93, added 1.90 percent to trade at $12.85 on Wednesday.