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Will Q1 Earnings Hold a Surprise for Staples (SPLS) Stock?

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Staples, Inc. is scheduled to report first-quarter fiscal 2016 results on May 18, 2016. In the previous quarter, the company reported a negative earnings surprise of 7.1%. Notably, in three out of the last four quarters the company’s earnings came in line with the Zacks Consensus Estimate. Let’s see how things are shaping up for this announcement.

Zacks Model Shows Unlikely Earnings Beat

Our proven model does not conclusively show that Staples is likely to beat earnings estimates this quarter. This is because a stock needs to have both a positive Earnings ESP and a Zacks Rank #1 (Strong Buy), 2 (Buy) or 3 (Hold) for this to happen. Staples has an Earnings ESP of 0.00% as both the Most Accurate estimate and the Zacks Consensus Estimate stand at 16 cents. Staples carries a Zacks Rank #3, which increases the predictive power of ESP. However, the company’s ESP of 0.00% makes surprise prediction difficult.

Factors Influencing this Quarter

The challenges across the office supplies sector and unfavorable currency fluctuations remain concerns for Staples. The company’s cost cutting and other initiatives hold promise for the long run but not for the short term, as reflected by management’s cautious stance. For the first quarter of fiscal 2016, the company anticipates sales to decline from the prior-year level, while adjusted earnings per share are projected in the range of 16–18 cents. The company’s sales and earnings forecast also takes into account the negative impact of currency translation.

In a highly unfavorable development for investors of both Staples and Office Depot, U.S. District Judge Emmet Sullivan has ruled out the merger of the companies. The company’s shares declined sharply after the announcement. The companies are now planning to terminate the merger on May 16, 2016. Per the merger agreement, Staples will compensate Office Depot with $250 million as merger break-up fee. According to the FTC, the deal would lower competition nationwide and result in price hikes and fewer options for large corporate houses that usually make bulk purchases.

Following, the verdict on the merger, Staples has outlined certain plans to increase long-term value. In order to acquire new customers, the company intends to increase its offering of products as well as services beyond office supplies.

Stocks Poised to Beat Earnings Estimates

Here are some companies you may want to consider as our model shows that these have the right combination of elements to post an earnings beat:

The Home Depot, Inc. (HD - Free Report) has an Earnings ESP of +1.50% and a Zacks Rank #2.

Lowe's Companies, Inc. (LOW - Free Report) has an Earnings ESP of +2.38% and a Zacks Rank #2.

Best Buy Co., Inc. (BBY - Free Report) has an Earnings ESP of +2.94% and a Zacks Rank #2.

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