Skip to main content

Market Overview

Leveraged Buyout Of Staples Merits Consideration, But Not A 'Slam Dunk'

Leveraged Buyout Of Staples Merits Consideration, But Not A 'Slam Dunk'

Shares of Staples, Inc. (NASDAQ: SPLS) soared Tuesday following reports the office supply retailer is in talks to sell itself in a deal that would value the company at $7 billion or more.

Anthony Chukumba of Loop Capital Markets commented on the reports, noting that the concept of a sale of itself "would merit the consideration" of financial sponsors but in no means is a deal a "slam dunk."

Chukumba explained that while Staples' physical business is a source of concern, the "much more stable and defensible" North American Delivery segment is an attractive asset for a strategic buyer. Moreover, Staples could also be seen as an under leveraged business that generates a healthy free cash flow.

$11 Per Share Price Tag

If a deal were to occur, the analyst believes an offer of $11 per share would generate an internal rate of return (IRR) of 16 percent. This would mark a "decent" return for a buyer but still short of a 20 percent return that private equity firms typically strive for.

With that said, Chukumba noted there is little upside in Staples' stock from its current levels. Aside from M&A talk, Staples' stock is trading at 10.7x the analyst's 2017 diluted earnings per share estimate, which is a discount to its one-year forward multiple over the past five years.

However, Staples' stock is also trading at a valuation in-line with other "secularly challenged" specialty hardline retailers. As such, the analyst is advising investors to "wait for a more attractive entry point before becoming more constructive on the stock."

Shares of Staples remain Hold rated with an unchanged $10 price target.

See Also:

Compare And Contrast: Staples Vs. Office Depot

Best Buy Would Be Major Beneficiary Of An hhgregg Liquidation

Latest Ratings for SPLS

Apr 2017CitigroupUpgradesNeutralBuy
Dec 2016Loop CapitalInitiates Coverage OnHold
Aug 2016Deutsche BankMaintainsHold

View More Analyst Ratings for SPLS
View the Latest Analyst Ratings


Related Articles (SPLS)

View Comments and Join the Discussion!

Posted-In: Anthony Chukumba retailers StaplesAnalyst Color M&A Rumors Analyst Ratings Best of Benzinga

Latest Ratings

ETCredit SuisseMaintains13.0
IFRXCredit SuisseMaintains2.8
METCredit SuisseMaintains68.0
FLXNCredit SuisseMaintains14.0
ENPHCapital OneInitiates Coverage On175.0
View the Latest Analytics Ratings
Don't Miss Any Updates!
News Directly in Your Inbox
Subscribe to:
Benzinga Premarket Activity
Get pre-market outlook, mid-day update and after-market roundup emails in your inbox.
Market in 5 Minutes
Everything you need to know about the market - quick & easy.
Fintech Focus
A daily collection of all things fintech, interesting developments and market updates.
Everything you need to know about the latest SPAC news.
Thank You

Thank you for subscribing! If you have any questions feel free to call us at 1-877-440-ZING or email us at