Hedge Funds Interested in Staples Inc. (SPLS)

Activist investors can be a good source of investment ideas. Given the usually large stakes that these hedge funds amass in a particular stock before launching an activist campaign, their interests are generally aligned with other shareholders. They can be a thorn on the side of the company management teams that they target, but the actions they seek, whether it is returning more capital to shareholders or selling off certain businesses or the entire company, are generally beneficial to the stock price.

Staples Inc. (NASDAQ:SPLS) has been a popular stock among hedge fund managers, with the likes of Ric Dillon of Diamond Hill Capital, David Costen Haley of HBK Investments and Eric Mindich of Eton Park Capital purchasing shares during the fourth quarter of 2013. They join other shareholders of the specialty retailer, such as Richard Pzena of Pzena Investment Management, Russell Hawkins of Hawkins Capital and Daniel Bubis of Tetrem Capital Management. In addition to hedge funds, insiders have also been active in the stock, with its Chairman and CEO Ronald Sargent, who is also the company’s largest shareholder, recently disclosing additional purchases of 8,500 shares.

Staples, Inc. (NASDAQ:SPLS)

Staples Inc. (NASDAQ:SPLS) is a $7.9 billion market cap company that operates office products superstores. It sells and delivers office products and services directly to businesses and consumers through its Staples.com and Quill.com Websites, as well as through retail stores, contract sales force, and direct mail catalog business. The company operated approximately 2,200 stores worldwide, including around 1,900 stores in the U.S. and Canada.

The shares have come under pressure recently after the company, along with a disappointing quarterly earnings report, announced plans to close up to 225 stores in North America over the next two years (on top of 40 closures in 2013). In an effort to improve profitability, management also initiated a multi-year restructuring plan that is expected to generate $500 million of annualized pre-tax cost savings by the end of 2015. Similar to other retailers, Staples has faced increasing competition from online shopping (despite being the second largest eCommerce player behind Amazon.com Inc. (NASDAQ:AMZN)), reduced traffic at brick-and-mortar stores and a lack of spending growth among its business and consumer customers. This has led to negative same store sales growth over the past several years, a trend that the company does not expect to reverse in the near-term.

Activist investors have been busy in the office supply space, with Jeffrey Smith of Starboard Value taking a 15% stake in Office Depot (NYSE:ODP) in 2012 and pushing for changes to its board. Smith, along with two of its nominees, eventually joined the board last year. Subsequently, in November, Office Depot and rival OfficeMax Inc. merged to become a stronger competitor in a weaker environment.

Staples Inc. (NASDAQ:SPLS) trades at a forward EV/EBITDA multiple of 5.3X, in-line with its peer group of specialty stores. Its profit margins and free cash flow generation are stronger than average, but top-line growth expectations are negative for the foreseeable future, alongside its peers. Staples also has a stronger credit profile, with the only investment grade rating among its specialty retailer competitors. However, the company operates in an industry with weak fundamental prospects, necessitating further restructuring as well as efforts to improve its online capabilities. Should these plans not generate the expected benefits, it will not take long for another activist investor to take a stake in the company and push for further action, whether strategic or financial in nature.

Disclosure: none

Recommended Reading:

The Internet’s 5 Biggest Online Stores

Staples, Inc. (SPLS): A $500 Investment in This Office Supply Stock Could Yield a 60% Return

Office Depot Inc (ODP), OfficeMax Inc (OMX): Staples, Inc. (SPLS) Is Fighting Hard Against Industry Trends

blog comments powered by Disqus
Insider Monkey Headlines
Insider Monkey Small Cap Strategy
Insider Monkey Small Cap Strategy

Insider Monkey beat the market by 52 percentage points in 24 months Click to see monthly returns in table format!

Lists

Qihoo 360 Technology Co Ltd (QIHU), Actavis plc (ACT), Yahoo! Inc. (YHOO) Among 20 Long Ideas from Sohn Canada

The 10 Laziest Countries in the World

The 10 Most Polluted Countries in the World

The 10 Most Dangerous Cities in America 2014

The Top 10 Gold Producing Countries in the World

The 10 Tallest Buildings in the World

The 10 Richest Stand Up Comedians in the World

The 10 Fattest Countries in the World

The 5 Best Summer Jobs for Teens

The 10 Most Religious Countries in the World Keeping the Faith

The 10 Most Educated Countries in the World

The 10 Most Popular Cell Phones in the World

The 10 Drunkest Countries in the World

The 10 Most Expensive Private Schools in the World

The 10 Smallest Countries in the World

Walking Dead Season 5 Spoilers You’ll Wish You Didn’t Know

The 10 Poorest Countries in the World

The 10 Greenest Countries in the World

The Top 10 Countries with the Highest Population in the World

The 10 Most Visited Countries in the World

The Top 10 Star Wars Characters in the Iconic Series

The 10 Most Expensive Android Phones in the World

5 Reasons Why The Illuminati Is Real and a Threat to Society

The 6 Scariest Halloween Costumes Ever Screamed At

The 4 Biggest Hedge Fund Managers in the World Today

The 15 Most Densely Populated Countries in the World

The 10 Biggest Tea Drinking Countries in the World

Top 6 Ways to Improve Your Checkout Process and Close Sales

The 5 Most Profitable Online Businesses You Can Start Today

The 20 Most Profitable Hospitals in the US

The 5 Most Profitable Home Businesses to Start

The 7 Teams that Will Win the Stanley Cup in 2015

The Top 10 Most Expensive Digital Cameras to Snap Stunning Shots With

The 10 Highest Quality Fast Food Restaurants In America Today

The 8 Best Halloween Decorating Ideas to Spook Up Your House

10 Marvel Women that Should Get a Movie Right Now

The 20 Best Remixes of Popular Songs that Will Make You Forget the Originals

7 Most Expensive Cities in the World

5 Least Expensive Cities in the World

10 Celebrities Who Believe In Scientology

10 High Margin Food Products to Build a Business Around

The 10 Most Expensive Clothing Stores in the United States to Get Decked Out At

The 5 Biggest Kickstarter Scams That Swindled Backers’ Donations

The 10 Most Expensive Boarding Schools In the World

50 Crazy Facts About Japan You Won’t Believe

Top 10 Least Expensive Hybrid Cars to Save the Planet With

The 10 Biggest ‘Gate’ Controversies in History

The 10 States with the Highest Nursing Shortages Leaving Their Hospitals Depleted

The 10 Best Value Investment Blogs that Every Investor Must Read

The 6 Cheapest Boarding Schools in Europe 2015

Subscribe

Enter your email:

Delivered by FeedBurner

X

Thanks! An email with instructions is sent to !

Your email already exists in our database. Click here to go to your subscriptions

Insider Monkey returned 47.6% in its first year! Wondering How?

Download a complete edition of our newsletter for free!