Analysts Project Where Staples Stock Could Go In 3 Years

In a report published Wednesday, KeyBanc Capital Markets analysts upgraded

from Sector Weight to Overweight, with a price target of $20, while adding that the stock has the potential to reach $25-$30 in three years. The FTC is likely to approve the acquisition of Office Depot, Inc. "Our analysis of the 3-2 rejection of the SPLS-ODP deal in 1997, followed by the unanimous approval of ODP-OMX in 2013, suggests a favorable landscape for consolidation, given significant competitive pressure (from Amazon and mass merchants at retail, and regional/independents, specialists and manufacturers in delivery)," the analysts said. There is significant synergy potential in the deal, and this could be as high as $2B. The potential for synergies would be supported by "improved vendor terms, supply chain rationalization, advertising efficiency, improved private label and store closures," the analysts wrote. Staples, Inc looks well positioned to increase its EPS, EBIT and EBITDA by 50-100 percent in the next three years. "We see the potential for $3B-$4B of annual EBITDA generation and $1.5B-$2.5B of annual free cash flow. Even if SPLS were to track to the low end of our coverage on valuation, these operating metrics imply SPLS could potentially reach up to $25-$30 per share in 3 years, representing a 15-23% CAGR from current levels," the report added. The analysts estimate SPLS-ODP to generate, on a pro forma basis, about $33B-$34B in revenue, approximately $3B-$4.5B in EBITDA, $1.5B-$2.5B in FCF, and about $1.50-$2.50 per share in EPS by FY18.