Jefferies Just Upgraded Office Depot, Staples

In a report published Thursday, analyst Daniel Binder of Jefferies upgraded Office Depot Inc ODP and Staples, Inc. SPLS from Hold to Buy. The price target for Office Depot was raised from $9.50 to $11.60, while Staples was raised from $16 to $20. The analysts expressed their optimism regarding the FTC clearance for the Staples/Office Depot deal. The current share prices of the companies reflect a 60 percent chance of the FTC approving the deal. However, the analyst believes that the chances of deal approval could be higher than that. "We believe proforma SPLS could more than double EPS in 3 years," Jefferies said. One of the reasons for the increased optimism regarding deal approval is the low anti-trust risk associated with retail due to the numerous competitors that exist both online and offline. In addition, the analyst believes that there is no reason for the FTC to change its definition of the large customer contract market, which the body had put in place 18 months ago, at the time of Office Depot's merger with OfficeMax Inc OMX. Jefferies also believes that "the pricing data analysis in contract will be favorable (i.e. prices have not changed materially since the ODP/OMX merger)." The analyst also expressed his optimism regarding the projected synergies of more than $1 billion, which would allow the merged entity to "more than double its earnings in the next 3 years," despite secular headwinds.