Staples (SPLS) reports fourth-quarter results later this week - 39 cents vs. a year-ago 46 cents, excluding extraordinary items, is what's expected - and value investors may sniff a bargain.
After all, Staples has a lovely dividend yield of 3.6%, it has often raised its payout, it's trading at a forward PE ratio of just 11, and it has a big restructuring underway aimed at restarting sales growth, cutting costs, broadening the products its sells and better competing with the likes of Amazon (AMZN) and Wal-Mart (WMT).
Staples through the first three quarters, ended November 2, 2013, bought back 18.2 million of its shares for $269 million. Not a large gesture, to be sure, but the message seems to be: it's cheap, so we'll buy some, and maybe you should, too.
SPLS data by YCharts
The view here, however, is that Staples is cheap for reasons its management mightn't
By Robert Goldsborough
U.S. stocks have little to show for themselves thus far in 2014, with the S&P 500 Index posting a slightly negative return (negative 0.8% as of this writing). However, after U.S. equities' tremendous gains in 2013, Morningstar's equity analysts consider the U.S. stock market to be fairly valued. The S&P 500 Index currently trades at a price/fair value of 1.01, while Morningstar's coverage universe is trading at a price/fair value of about 1.03.
While Morningstar's equity analysts deem all broad U.S. equity sectors fairly valued, we see a potential buying opportunity for contrarian investors in the beleaguered consumer staples sector, which currently has one of the lowest price/fair value ratios of any U.S. equity sector, at 0.97.
Over the past 12 months, the staples sector has lagged every other U.S. equity sector except the energy sector, and it has been the worst-performing equity sector thus far in