School Specialty Ests Lowered

School Specialty (SCHS - Analyst Report) reported fiscal third quarter results that were below our sales and EPS estimates. However, management maintained its revenue and earnings guidance for fiscal 2008. The company continues to expect revenue of $1.08-$1.10 billion and EPS from continuing operations of $2.15-$2.25.

Due to the company's lower-than-expected results in the third quarter, we are lowering our 2008 EPS to the low end of management's guidance. We maintain our Hold rating on the stock. School Specialty's industry-leading market position, smart acquisition strategy, and cost-cutting efforts are offset by growing competitive pressures and limited growth prospects.

Our target price is $32.50, or about 15x our fiscal 2008 EPS estimate. SCHS shares are currently trading at 14.4x our fiscal year 2008 EPS estimate and 13.1x our fiscal year 2009 EPS estimate. Compared to its education peers, School Specialty shares are reasonably valued. As such, we expect it to trade in line with the S&P 500 over the next six months.

Read the full analyst report on SCHS.