Monday’s Top Upgrades (and Downgrades): Boise Cascade Co (BCC), OfficeMax Inc (OMX), Office Depot Inc (ODP)

KeyBanc has a point that the companies are getting short shrift when valued on their sales. If Staples shares cost 0.37 times trailing sales, the “DepotMax” shares are priced in the low-teens — 0.11 times sales for “Depot,” and 0.15 for “Max.” But based on fiscal 2014 earnings estimates, Staples shares today cost about 9.6 times such forward earnings.” OfficeMax Inc (NYSE:OMX), in contrast, costs 13.3 times forward earnings, while Office Depot Inc (NYSE:ODP)’s forward P/E is 31.4. That’s the very opposite of a discount, and it’s the opposite of logical, too, considering that Staples sports an operating profit margin several times larger than either OfficeMax or Office Depot.

Seems to me, to justify what’s really a premium valuation being placed on DepotMax shares, you have to assume that merging two bad retailers in hopes of creating one good one will work, and one that will in fact be a viable competitor. Last time someone tried doing, that, though, it was the merger of Kmart and Sears to create Sears Holdings Corporation (NASDAQ:SHLD) — and we all know how that worked out.

KeyBanc’s enthusiasm notwithstanding, I don’t see any reason DepotMax would work out any better.

The article Monday’s Top Upgrades (and Downgrades) originally appeared on Fool.com and is written by Rich Smith.

Fool contributor Rich Smith has no position in any stocks mentioned. The Motley Fool owns shares of Staples.

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