Staples Inc. Analysis – September 2015 Update $SPLS

Benjamin Graham taught that Intelligent Investors must do a thorough fundamental analysis of investment opportunities to determine their intrinsic value and inherent risk.  This is best done by utilizing a systematic approach to analysis that will provide investors with a sense of how a specific company compares to another company or by reviewing the 10 Most Undervalued Companies for the Defensive Investor – August 2015.  By using the ModernGraham method one can review a company’s historical accomplishments and determine an intrinsic value that can be compared across industries.  What follows is a stock analysis showing a specific look at how Staples Inc. (SPLS) fares in the ModernGraham valuation model.

Company Profile (obtained from Google Finance): Staples, Inc. is a provider of products and services that serve the needs of business customers and consumers. The Company offers a selection of products, such as Websites and mobile platforms, retail and online shopping and a range of copy and print and technology services. It operates in three business segments: North American Stores & Online, North American Commercial and International Operations. The North American Stores & Online segment includes its retail stores and businesses in the United States and Canada. The North American Commercial segment consists of the United States and Canadian businesses that sell and deliver products and services directly to businesses, including Staples Advantage and The International Operations segment consists of businesses in around 23 countries in Europe, Australia, South America and Asia. It serves businesses in North America, Europe, Australia, South America and Asia. Its delivery business offers online order placing.


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Downloadable PDF version of this valuation:

ModernGraham Valuation of SPLS – September 2015

Stage 1: Is this company suitable for the Defensive Investor or the Enterprising Investor?

What kind of Intelligent Investor are you?

Defensive Investor; must pass 6 out of the following 7 tests.
1. Adequate Size of the Enterprise Market Cap > $2Bil $7,986,651,802 Pass
2. Sufficiently Strong Financial Condition Current Ratio > 2 1.58 Fail
3. Earnings Stability Positive EPS for 10 years prior Fail
4. Dividend Record Dividend Payments for 10 years prior Pass
5. Earnings Growth Increase of 33% in EPS in past 10 years using 3 year averages at beginning and end -53.00% Fail
6. Moderate PEmg Ratio PEmg < 20 24.21 Fail
7. Moderate Price to Assets PB Ratio < 2.5 OR PB*PEmg < 50 1.54 Pass
Enterprising Investor; must pass 4 out of the following 5 tests, or be suitable for the Defensive Investor.
1. Sufficiently Strong Financial Condition Current Ratio > 1.5 1.58 Pass
2. Sufficiently Strong Financial Condition Debt to NCA < 1.1 0.52 Pass
3. Earnings Stability Positive EPS for 5 years prior Fail
4. Dividend Record Currently Pays Dividend Pass
5. Earnings Growth EPSmg greater than 5 years ago Fail

Stage 2: Determination of Intrinsic Value

SPLS value Chart September 2015

EPSmg $0.51
MG Growth Estimate -4.25%
MG Value $0.41
Opinion Overvalued
MG Value based on 3% Growth $7.43
MG Value based on 0% Growth $4.36
Market Implied Growth Rate 7.85%
Current Price $12.41
% of Intrinsic Value 3052.95%

Staples Inc. does not qualify for either the Enterprising Investor or the more conservative Defensive Investor.  The Defensive Investor is concerned with the low current ratio, insufficient earnings growth or stability over the last ten years, and the high PEmg ratio.  The Enterprising Investor is concerned with the lack of earnings growth or stability over the last five years.  As a result, all value investors following the ModernGraham approach based on Benjamin Graham’s methods should explore other opportunities or proceed with a cautious speculative attitude.

As for a valuation, the company appears to be overvalued after seeing its EPSmg (normalized earnings) decline from $1.24 in 2012 to an estimated $0.51 for 2015.  This level of demonstrated earnings growth does not support the market’s implied estimate of 7.85% annual earnings growth over the next 7-10 years.  As a result, the ModernGraham valuation model, based on Benjamin Graham’s formula, returns an estimate of intrinsic value below the price.

The next part of the analysis is up to individual investors, and requires discussion of the company’s prospects.  What do you think?  What value would you put on Staples Inc. (SPLS)?  Where do you see the company going in the future?  Is there a company you like better?  Leave a comment on our Facebook page or mention @ModernGraham on Twitter to discuss.

Stage 3: Information for Further Research

SPLS Charts September 2015

Net Current Asset Value (NCAV) $0.41
Graham Number $10.88
PEmg 24.21
Current Ratio 1.58
PB Ratio 1.54
Dividend Yield 3.87%
Number of Consecutive Years of Dividend Growth 0



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Most Recent Balance Sheet Figures

Total Current Assets $5,374,000,000
Total Current Liabilities $3,412,000,000
Long-Term Debt $1,018,000,000
Total Assets $10,326,000,000
Intangible Assets $2,972,000,000
Total Liabilities $5,111,000,000
Shares Outstanding (Diluted Average) 647,000,000

Earnings Per Share History

Next Fiscal Year Estimate $0.65
Jan15 $0.21
Jan14 $0.94
Jan13 -$0.31
Jan12 $1.40
Jan11 $1.21
Jan10 $1.02
Jan09 $1.13
Jan08 $1.38
Jan07 $1.32
Jan06 $1.12
Jan05 $0.93
Jan04 $0.66
Jan03 $0.63
Jan02 $0.27
Jan01 $0.10
Jan00 $0.45
Jan99 $0.27
Jan98 $0.23
Jan97 $0.19
Jan96 $0.14

Earnings Per Share – ModernGraham History

Next Fiscal Year Estimate $0.51
Jan15 $0.53
Jan14 $0.74
Jan13 $0.72
Jan12 $1.24
Jan11 $1.17
Jan10 $1.17
Jan09 $1.22
Jan08 $1.20
Jan07 $1.06
Jan06 $0.86
Jan05 $0.66
Jan04 $0.48
Jan03 $0.38
Jan02 $0.26
Jan01 $0.25
Jan00 $0.30

Recommended Reading:

Other ModernGraham posts about the company

17 Companies in the Spotlight This Week – 9/20/2014
Staples Inc. Annual Stock Valuation – 2014 $SPLS

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The author did not hold a position in any company mentioned in this article at the time of publication and had no intention of changing that position within the next 72 hours.  See my current holdings here.  This article is not investment advice; any reader should speak to a registered investment adviser prior to making any investment decisions.  ModernGraham is not affiliated with the company in any manner.  Please be sure to read our full disclaimer.


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