UPDATE: Morgan Stanley Downgrades Staples to Equal-Weight: Cashflow at Risk

Morgan Stanley reduced its rating on Staples (NASDAQ: SPLS) from Overweight to Equal-weight and removed its previous price target of $18 a share.

Morgan Stanley commented, "With sales faltering, cash flows at greater risk.Declining core supplies, paper and ink sales continue to offset growth in adjacent categories. In particular, 2% ink and 3-6% paper sales declines in 1H12 despite 2% white collar employment growth suggests a steeper decline in printing than we had previously expected. With revenues declining modestly and fixed costs halted, but not significantly reduced, the cash flows that we find attractive about SPLS appear in greater risk over the next two to three years.

Staples closed at $10.98 on Thursday.

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