Next Tuesday, Staples (SPLS) will host a conference call outlining its integration strategy and expectations for newly acquired Australia-based office supply chain Corporate Express (CXP).
Credit Suisse doesn’t expect “major surprises”, just a clear integration plan from the “superb management team” led by CEO Ron Sargent:
Perhaps the biggest question on investors’ minds is what level of synergies SPLS expects to reap from the transaction? In our view, Staples will likely offer a conservative estimate in the $200-$300m range, as the company has little incentive to guide aggressively. In our view, ultimate synergies from this transaction could be well over $400m, driving $0.50+ in EPS accretion over 3+ years. Moreover, we expect the company’s longer-term operating margin goal of 10% to remain intact.
In the near-term, CS expects some incremental dilution and is also worried that macro headwinds may derail Staples. However, they urge investors to ignore short-term pain, look long-term and watch SPLS build a stronger business model while Office Depot (ODP) an Office Max (OMX) “waffle.”
Credit Suisse reiterates OUTPERFORM on Staples (SPLS), target $29.
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