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Growth & Income

Estimates have been moving higher for United Stationers Inc. (USTR - Snapshot Report) since the company reported strong first quarter results on April 25.

The company reported better than expected revenue and earnings due to strong demand and margin improvement.

Analysts expect strong growth for USTR over the next two years, with 20% EPS growth in 2011 and 18% growth in 2012. Despite this, shares trade at just 13.9x forward earnings with a PEG ratio below 1.0.

The company also recently initiated a dividend that yields a solid 1.4%.

Company Description

United Stationers Inc. is a wholesale distributor of business products, including technology products, office products, office furniture, janitorial and breakroom supplies, and industrial products.

First Quarter Results

On April 25, United Stationers reported first quarter earnings per share of 95 cents, a penny ahead of the Zacks Consensus Estimate. It was a stellar 27% increase over the same quarter in 2010.

Net sales for the quarter came in at $1.24 billion, which was also slightly ahead of the consensus estimate which called for sales of $1.20 billion. Net sales were up 5.5% year-over-year on an adjusted basis.

Sales in the industrial supplies category were exceptionally strong, rising 26.1% over the same quarter in 2010. The furniture category was still weak, however, sliding 1%.

The company was able to improve its margins, as gross profit as a percentage of sales increased from 14.5% to 14.7%. Meanwhile, operating expenses held steady at 11.4% of sales. This led to a 16% increase in adjusted operating income.

Outlook

Analysts revised their estimates higher for both 2011 and 2012 off the solid quarter, sending the stock to a Zacks #2 Rank (Buy).

Based on consensus estimates, analysts are projecting strong earnings growth for USTR over the next two years. The 2011 Zacks Consensus Estimate is $5.26, representing 20% growth over 2010 EPS. The 2012 consensus estimate is 18% higher at $6.22.

Initiation of Dividend

On March 1, the Board of Directors for USTR approved the initiation of a quarterly cash dividend of $0.26 per share. This equates to an annual yield of 1.4%.

Typically, when a company decides to begin paying out a regular quarterly dividend it is signaling that it is confident in the long-term outlook of its business.

USTR has been buying back stock and could have allocated more cash to that program, but it decided instead to pay out a regular quarterly dividend, which is a much longer-term commitment.

Valuation

The valuation picture looks attractive with shares sporting a PEG ratio of just 0.9. It trades at 13.9x forward earnings, in-line with the industry average.

United Stationers Inc. is headquartered in Deerfield, Illinois and has a market cap of $1.7 billion.

Todd Bunton is the Growth & Income Stock Strategist for Zacks.com.

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