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OfficeMax Inc. (OMX) has amassed five straight quarters of positive earnings surprises with an average beat of nearly 26%. Earnings estimates for this office supplies retailer are trending higher, underscoring its Zacks #1 Rank (Strong Buy).

With relatively low valuation multiples, including a price-to-sales (P/S) ratio as low as 0.12 and a price-to-book (P/B) multiple of just 0.84, OMX is a true value pick with good upside potential.

Profit Surges, Beats Estimate

OfficeMax announced impressive third-quarter results on November 6, with earnings of 27 cents per share eclipsing the Zacks Consensus Estimate by 3.9% and last year’s performance by 8%. The quarter’s earnings were aided by effective cost management and improved operating margins.

However, total sales dropped 1.7% from the year-ago quarter to $1,744.6 million and was shy of the Zacks Consensus Estimate.

Gross profit inched up 0.2% to $460.4 million during the quarter, whereas gross profit margin expanded 50 basis points to 26.4%. Operating income increased 8.7% to $44.9 million, and operating margin expanded 30 basis points to 2.6%.

Management expects operating margin for the fourth quarter to be marginally lower than the prior-year quarter’s 1.7%. For 2012, it is expected to be a tad higher than 1.7% reported in the prior year.

OfficeMax is repositioning itself in this turbulent consumer environment. The company is containing costs, closing underperforming stores and focusing on innovative products and services. The company’s digital as well as technology and document solutions are also gaining traction.

Earnings Estimates Moving Up

The Zacks Consensus Estimate for 2012 rose 1.3% to 76 cents per share, implying year-over-year growth of 25.3%. For 2013, the Zacks Consensus Estimate jumped 5% to 84 cents per share, suggesting a year-over-year increase of 9.7%.

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 just 11.81. A P/E below 15.0, a P/S ratio less than 1.0 and a P/B ratio under 3.0 generally suggests a value stock.

The return on equity (ROE) also looks attractive. It has a trailing 12-month ROE of 10.4%. Moreover, the stock’s last traded price of $9.90 is 6.8% below the 52-week high of $10.62, indicating that there is room for growth.

The stock price remains below 2013 and 2014 earnings estimates, reflecting that the it is still undervalued. The stock has generated a return of 110.2% over the past year, which is significantly higher than the S&P 500’s return of 14.9%. Volume averages roughly 1,552K daily.

OfficeMax Incorporated 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. OfficeMax, which competes with Office Depot Inc. (ODP), has a market cap of $858.8 million.

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