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United Stationers Inc. (USTR - Snapshot Report) achieved a Zacks #1 Rank (Strong Buy) on October 31, following impressive third quarter 2012 results with an encouraging earnings surprise of 8.3%. The company has outpaced estimates in 4 of the last 5 quarters leading to an average surprise of 3.5% for the same period. Moreover compelling valuation makes this stock an attractive investment opportunity.

Third Quarter Results

On October 22, United Stationers posted third-quarter earnings of 91 cents a share, ahead of the Zacks Consensus Estimate of 84 cents. Moreover, earnings increased 12.3% from the year-ago quarter’s earnings of 81 cents. Gross margin expansion and reduced interest expenses, along with share repurchase activities, boosted bottom-line results.

The quarter’s downside wasthe net sales, which dropped 1.6% from the year-ago quarter to $1,288.7 million, and also fell short of the Zacks Consensus Estimate of $1,328 million. However, sales remained even with the year-ago quarter after adjusting for one less selling day in the quarter.

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 Estimate Revisions

The Zacks Consensus Estimate for 2012 increased 3.8% to $2.70 per share in the last 60 days. The current estimate implies year-over-year growth of 8.7%. Moreover, for 2013, Zacks Consensus Estimate increased 4.1% to $3.03 per share, reflecting an estimated year-over-year growth of about 12.2%.

Valuation

United Stationers currently trades at a forward price-to-earnings (P/E) multiple of 11.05 (at par with the peer group average) and has low P/S and P/B multiples. A P/E below 15.0, a P/S ratio less than 1.0 and a P/B ratio under 3.0, generally indicate a value stock.

On the profitability front, the stock looks attractive with a trailing 12-month return on equity (ROE) of 15.8% (above the peer group average of 11.9%). The company’s PEG ratio of 1.0 stands at par with the benchmark indicator, and has a long-term earnings growth projection of 11%.

About the Company

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 - Analyst Report) has a market cap of $1.20 billion.

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