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OfficeMax Inc. (OMX) is a true value stock given four straight quarters of positive earnings surprises, upward trending earnings momentum and an attractive valuation.
With relatively low valuation multiples, including a price-to-sales (P/S) ratio as low as 0.06 and a price-to-book (P/B) multiple of just 0.79, this Zacks #2 Rank (Buy) office supplies retailer has enough upside potential during this weak economic environment.
Profit Surges, Beats Estimate
OfficeMax declared impressive second-quarter results on August 2, wherein earnings of 12 cents per share surpassed the Zacks Consensus Estimate by more than 71% and increased substantially from 7 cents in the prior-year quarter. The quarters earnings were aided by effective cost management. Looking at the earnings surprise history over the last four quarters, OfficeMax has topped the Zacks Consensus Estimate by an average of 31.4%.
However, total sales dropped 2.7% from the year-ago quarter to $1,602.4 million, and also fell short of the Zacks Consensus Estimate of $1,638 million.
The company now expects third quarter sales to be flat or marginally higher than the prior-year period, including the adverse impact of foreign currency translation. Sales for 2012 are projected to be flat with the prior year, including the negative impact of foreign currency translation and excluding the extra week in 2011, which resulted in incremental sales of about $86 million.
Gross profit fell 3.7% to $409.5 million, whereas gross profit margin contracted 20 basis points to 25.6%. Operating income surged 29.1% to $23.1 million, and operating margin expanded 30 basis points to 1.4%.
The economic recovery continues to paint a dull picture. As a result, consumers and small businesses are cautious regarding their spending. Thus, OfficeMax is repositioning itself to keep afloat in a difficult consumer environment. The company is containing costs, closing underperforming stores and focusing on innovative products and services. The companys digital as well as technology and document solutions are also gaining traction.
Earnings Momentum Moving Uphill
The Zacks Consensus Estimate for 2012 rose 5.8% to 73 cents per share on upward revisions in 7 of 10 estimates in the last 30 days. The current estimate implies year-over-year growth of 18.9%.
For 2013, six of 9 estimates were revised higher over the same timeframe, eventually lifting the Zacks Consensus Estimate by 3.9% to 79 cents per share. The current estimate suggests year-over-year growth of 8.8%.
In addition to low P/S and P/B multiples, the stock looks attractive with respect to a forward price-to-earnings (P/E) multiple of just 7.12. A P/E below 15.0, a P/S ratio less than 1.0 and a P/B ratio under 3.0 generally hints at a value stock. Volume is fairly strong, averaging roughly 1,496K daily.
The return on equity (ROE) also looks attractive. It has a trailing 12-month ROE of 11.8%. It also has a PEG ratio of 0.70, which is less than one and indicates that the stock is reasonably valued given the expected growth. Moreover, the stocks last traded price of $5.16 is below the 52-week high of $6.56, indicating that there is still room for further growth.
OfficeMax, which competes with Office Depot Inc. (ODP), reinstated its quarterly dividend payout of 2 cents per share after suspending it three and a half years ago. The dividend will be paid on August 31 to shareholders of record as of August 15. Therefore, in addition to being a value stock, the company also offers an income opportunity.
Founded in 1913 and headquartered in Naperville, Illinois, OfficeMax Incorporated (OMX and formerly known as Boise Cascade Corporation) and its subsidiaries distribute office supplies and paper, print and document services, technology products and solutions, and office furniture to business enterprises, government offices and consumers. The company, through approximately 29,000 associates, serves its customers via direct sales, catalogs, Internet and retail stores located in the United States, Canada, Australia, New Zealand, Mexico, the U.S. Virgin Islands and Puerto Rico. The company has a market cap of $447 million.