Staples (SPLS) is the world’s largest office products company with annual sales of $25 billion. The company operates stores in 26 countries throughout North and South America, Europe Asia and Australia and is the world’s second largest eCommerce company with more than $11 billion in Internet sales.

1. Accelerated Online Presence and Sales Growth Strategy: Staples management announced in September that it is increasing investment in online and mobile capabilities and significantly expanding its assortment of office supplies to more than 100,000 items on Staples.com, which receives more than 700,000 views per week in the U.S.1

2. Sustainable Competitive Advantage: With a 10% share of the world's office products market, SPLS more than doubles the share of its nearest two direct competitors, OfficeMax and Office Depot. Since 2007, Staples has gained significant market share by targeting mid-size businesses and organizations with 20 to 500 office workers as well as Fortune 1000 companies.2

3. Experienced Management Team: Staples' management has the most extensive experience in the industry with senior executives that average more than 13 years in the industry. Chairman and CEO, Ronald Sargent, has been employed at Staples for all but two of the twenty five year history of the business and he owns more than $25 million of company stock.3

4. A History of Returning Cash to Shareholders: Staples remains fully committed to returning excess cash to shareholders via the continued repurchase of its common stock, which is expected to be approximately $450 million during fiscal year 2012. As a result of the repayment of $325 million of long-term debt and payment of approximately $300 million in dividends, Staples will return more than $1 billion to shareholders during fiscal year 2012.

5. Attractive Business Valuation: Historically, shares of Staples have not sold this cheap since 2003. Shares of Staples currently sell for eight times trailing free cash flow of approximately $1 billion, which equates to approximately 12% free cash flow yield. It pays an annual dividend of $0.44 per share, which equates to a dividend yield of 3.75%. The business is conservatively capitalized with a 20% long-term debt/capital ratio and historically has provided rates of return on capital in excess of 10% per annum. Staples is attractively priced in relation to its business valuation and is capable of providing a satisfactory rate of return for shareholders over time.

1. Staples 3rd quarter 10-Q 20122. & 3.Staples 2011 Annual Report

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