UPDATE: J.P. Morgan Downgrades Staples to Neutral, Lowers PT Following Another Quarter of Underperformance

In a report published Friday, J.P. Morgan analyst Christopher Horvers downgraded the rating on Staples SPLS from Overweight to Neutral, and lowered the price target from $17.00 to $15.00. In the report, J.P. Morgan noted, “We are downgrading SPLS to Neutral given another quarter of underperformance as secular pressures appear to have accelerated, limiting management's visibility into the business and its ability to overcome headwinds through strategic change. We are lowering our FY13 EPS estimate to $1.24 (vs. guidance of $1.21-1.25) and reducing our FY14 forecast 11% to $1.29. We are establishing a Dec 2014 price target of $15 (previously a Dec 2013 price target of $17), which is also reduced by 11%. With only 7% upside from current levels, we are moving to Neutral. While the bulls may point to lapping price investments, possible share gains from the potential OMX/ODP merger, and easy compares, we believe the company is limited by its real estate portfolio (now seemingly a long-term liability) and the ongoing digital transition. We are lowering our 2014 NA SSS forecast to -1% from +1.5% (the last year SPLS was able to deliver positive comps was 2006). Indeed, all three major office supply stores have spoken to intensifying pressure in core paper, ink, and toner categories in the 1H, and considering this represents ~30% of mix, improvement in adjacent categories that the company is simultaneously chasing with its competitors is likely to be negligible at the margin.” Staples closed on Thursday at $14.05.