Recently, we initiated coverage on Staples, Inc., (SPLS) with a Neutral rating and a price target of $26.00.
 
Staples is a leading retailer of office products and services. The company distributes its products in North America and globally. The products sold by Staples include a wide range of office products, including supplies, technology, furniture, and business services. 

The services offered by Staples include high speed color and self service copying, other printing services, faxing, and pack and ship services. The company conducts its business through three reportable segments: North American Delivery, North American Retail and International operations. Staples’ North American Delivery segment consists of the U.S. and Canadian business units that sell and deliver office products and services directly to customers. The segment includes Contract (including Corporate Express which was acquired by Staples in July 2008), Staples Business Delivery and Quill – a direct mail catalog and internet business acquired in 1998. Staples Business Delivery operations combine the direct mail catalog business and the activities of the company’s Canadian internet sites. The North American Retail segment consists of the U.S. and Canadian business units that operate office products stores. The International operations division consists of business units (including Corporate Express) that operate office products stores and sell and deliver office products and services directly to customers and businesses in multiple countries OF Europe, Asia, Australia and South America. The segments contributed 38.7%, 41.1% and 20.2% to total sales of $23.084 billion for the fiscal year ended January 31, 2009. 

We are pleased with the company’s wide range of products. Staples’ considerable international presence and its efforts to expand further are quite encouraging. However, the fierce competition faced by the company’s products is a worry. Furthermore, even though Staples relies on growth by acquisition and has completed multiple acquisitions over the past few years and is on the lookout for more, it is pursuing a weak business model. Additionally, the dependence of the company on third-party vendors is an inherent risk.
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