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Value

United Stationers Inc. (USTR - Snapshot Report) recently posted impressive third-quarter results that included a positive surprise of 8.3%. The company has now registered positive earnings surprises in 4 of the last 5 quarters with an averaging beat of approximately 3.5%. Earnings momentum for this Zacks #1 Rank (Strong Buy) wholesale distributor of business products has been advancing since the announcement.

Moreover, compelling valuation metrics, including a price-to-book (P/B) multiple of 1.68 and price-to-sales (P/S) ratio as low as 0.24, make USTR a promising value proposition for investors.

Profit Rises on Margin Expansion

On October 22, United Stationers reported third-quarter earnings of 91 cents per share, surpassing the Zacks Consensus Estimate of 84 cents. The result also surpassed last year’s performance of 81 cents by 12.3%. Gross margin expansion and reduced interest expenses, along with share repurchase activities, aided the bottom-line growth.

Net sales of $1,288.7 million dropped 1.6% from the year-ago quarter and also fell short of the Zacks Consensus Estimate at $1,328 million. It remained even with the prior-year quarter after adjusting for one less selling day in the quarter. However, management trimmed its sales growth forecast to between 1.5% and 2%, down from 2% to 3% projected earlier.

The company experienced sales growth of 7% and 2.3% year-over-year in the industrial supplies and janitorial/breakroom categories, respectively. Office products marginally increased by 1.3%. Sales declined at the technology and furniture categories by 4.5% and 2.9%, respectively.

Gross profit margin expanded 56 basis points to 15.8% versus the prior-year quarter due to lower cost of goods sold. Operating margin remained flat at 4.9%.

Earnings Estimates on the Rise

The Zacks Consensus Estimate for 2012 rose 3.8% to $2.70 per share over the past 30 days, as all 3 estimates were revised higher. The current estimate implies year-over-year growth of 8.7%. For 2013, the Zacks Consensus Estimate is up 4.1% to $3.03 per share, suggesting year-over-year growth of 12.2%.

Impressive Valuation

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 10.94 (lower than the peer group average of 11.31). A P/E below 15.0, a P/S ratio less than 1.0 and a P/B ratio under 3.0 generally hint at a value stock. Volume is fairly strong, averaging roughly 202K daily. The return on equity (ROE) also looks attractive. It has a trailing 12-month ROE of 15.8% compared with the peer group average of 11.9%. The company’s PEG ratio of 1.0 stands on par with the benchmark indicator, and has a long-term earnings growth projection of 11%.

A Look at Chart

A quick glance at the price and consensus chart reveals that the stock price line remains below the 2012 and 2013 earnings estimate lines, reflecting that the stock is still undervalued. Currently, the stock price is in the range of $25.00–$30.00.

Founded in 1922 and headquartered in Deerfield, Illinois, United Stationers is the wholesale distributor of business products in North America. The company offers technology products such as computer supply, peripheral products and computer hardware items. It also distributes traditional office products that include filing and record storage products, business machines, presentation products, writing instruments, paper products etc. The company also offers industrial supply items, such as hand and power tools; safety and security supplies; janitorial equipment and supplies. United Stationers, which primarily competes with Staples, Inc. (SPLS), has a market cap of $1.19 billion.


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