Office suppliers under pressure
Goldman Sachs says office supply chains to face ‘severe pressure’ because of economic downturn
New
youk – Goldman Sachs cut its earnings estimates and price targets for
the nation’s three largest office supply chains on Tuesday, saying the
trio will face “severe pressure” amid the country’s escalating economic
downturn.Matthew J. Fassler told investors in a research note that he’s
concerned about “structural erosion” for OfficeMax Inc., Office Depot
Inc. and Staples Inc.”Same-store sales were already very weak before
the drop-off in retail sales and business activity that began in
mid-September,” he wrote. “Because sales trends in the retail segments
of these companies had underperformed typical relationships with macro
factors, we’ve been concerned about structural erosion of that
channel’s viability.”
Fassler lowered his price target on
Naperville Ill.-based OfficeMax to $6, down from $16. The company is
set to report third quarter results on Friday.Meanwhile, he cut his
price target on Office Depot to $3.75, down from $9. He also cut
Staples to $18, down from $24.He rates all three stocks
“Neutral.”Fassler said both Framingham, Mass.-based Staples and Office
Depot, which have significant overseas revenue and profits, will likely
be hit by the impact of slowing European economies and weakening
foreign currency.Meanwhile, he said Delray Beach, Fla.-based Office
Depot, which reports third quarter results on Wednesday, represents an
“intriguing opportunity” for investors interesting in high-risk and
high-reward opportunities because of the company’s low stock price.
Fassler
said Office Depot has no immediate liquidity threat and appears to be
below borrowing caps that could trigger debt covenants, but added the
company’s earnings are under pressure, which could hamper
results.OfficeMax shares were unchanged at $3.27 in pre-market trading
Tuesday while shares of Office Depot held steady at $1.60. Staples
shares were unchanged at $13.67.