The increasingly skittish market rewarded OfficeMax
OfficeMax, the nation's third largest office supply retailer behind Staples
The company's special items for the quarter included a $38.8 million credit related to the sale of paper, forest products, and timberland assets. Somewhat offsetting that figure were expenses totaling $10.7 million for facility closing costs, severance, and headquarters consolidation.
The OfficeMax contract segment, which sells to business and government customers, posted $50.8 million in operating income, versus $29.6 million a year ago. The retail portion's operating income was $42.3 million, compared to $22.3 million in the same quarter a year earlier. All the values "exclude special items."
In announcing his company's results, OfficeMax chairman and CEO Sam Duncan said, "The fourth quarter and full year 2006 represented significant improvement for OfficeMax. We delivered on our turnaround plan goals with solid operating income margin expansion in both our contract and retail segments."
There is a possibility that OfficeMax shares were simply resting on Friday. In comparison to Staples' shares, which have increased about 20% during the past year, and Office Depot's, which are essentially flat year over year, OfficeMax shareholders have watched its share price increase about 70% since February 2006.
Looking at a couple of generally meaningful valuation metrics, with a forward P/E multiple of nearly 21, OfficeMax trades at a 13% premium to Staples and a nearly 60% premium to Office Depot. Further, the ratio of enterprise value (essentially all the debt and equity that has gone into funding the business) to EBITDA (earnings before interest, taxes, depreciation, and amortization) is in the vicinity of 9 to 10 at Office Depot and Staples, while at OfficeMax, that figure is approaching 15. At the same time, both Staples and Office Depot sport balance sheets with far less relative debt than OfficeMax.
So there is a pronounced valuation disparity among the three publicly held office-supply retailers. And while there arguably are justifications for that disparity, there also could be a narrowing of the valuation gap within the group. Thus, and given the extent to which OfficeMax has run off and hidden from its peers over the past year, I would suggest that Fools simply remain on the sidelines for a quarter or so.
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