Here's Why UBS Just Upgraded Staples

In a report published Monday, UBS analyst Michael Lasser upgraded shares of

to Buy from Neutral with a price target raised to $20 from a previous $18 as a recent pull-back in shares has created an "attractive entry point." According to Lasser, the upside in shares of Staples outweighs the downside risk. The analyst argued that in the near term, the stock's direction will depend "heavily" on its ability to close and finalize its acquisition of

– an outcome that is "more likely than note." Lasser added that the market is only assigning a 35 percent likelihood that Staples can finalize its acquisition while a more realistic probability is 65 percent, based on discussions with FTC experts and large enterprise OS customers. If the market is assuming a 65 percent chance the acquisition finalizes, Lasser calculated that this translates to a year 2016 earnings per share estimate of only $1.20, below the $1.60 figure that is "more likely." Longer-term, $1 billion in net synergies is "very realistic." "If the FTC blocks the deal or places onerous conditions on a transaction, we think Staples will still be fine," Lasser wrote. "Most likely, it will face a far weakened competitor in Office Depot as this player will probably face heavy staff attrition & operational disruption between now and when the ruling on the deal comes down." Lasser also noted that when the proposed Staples and Office Depot combination was blocked in 1997, Staples was able to put "sustained distance" between itself and the competition. In addition, Staples has been in "investment mode" and its pace of spending will slow and the company can still generate an earnings per share of $1.10 to $1.20 this year on its own, "cushioning" the downside.