An improving economic environment should boost the fortunes of office supply retailers, an analyst said Monday, focusing on Staples and Office Depot.
Janney Capital Markets analyst David Strasser that Staples, which is not only the largest retailer of its kind but has been the best performing during the recession, will benefit from industry consolidation and store closures.
"Staples took share, and did an excellent job managing margins during the downturn, and we look for earnings growth acceleration in 2011 after flat earnings over the past two years period," Strasser wrote.
Staples also will likely benefit from its expanded lineup of products, including goods for the break room items and cleaning supplies, Strasser said.
Office Depot is gaining strength thanks to a new CEO, and an improving job market, he said.
"After lagging in 2010, we believe the office products category is primed for outperformance in 2011 as jobs recover quicker than housing, driving relatively strong performance in this category," Strasser wrote.
He raised both companies' ratings to "Buy" from "Neutral."
Strasser noted also that OfficeMax Inc. also has a new CEO, and said it may again consider a tie-up with Office Depot.
Shares of Staples Inc. rose 61 cents, or 2.7 percent, to $23.38 in midday trading. The stock has traded between $17.45 and $26 over the past year.
Shares of Office Depot Inc. rose 36 cents, or 6.7 percent, to $5.76. The stock has traded between $3.52 and $9.19 over the past year.
Shares of OfficeMax rose 5.3 percent, or 94 cents, to $18.64.
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