Staples Going Under $10: Joe Terranova
Staples slogan may be ‘that was easy’ but being a shareholder this week has been anything but easy.
Staples stock price plunged on Wednesday after the company released earnings that were lower than expected and then cut forecasts for the year.
Staples now expects flat sales for 2012 and a low single digit percentage gain in earnings. Previously, it had forecast growth in the low single digits for sales and in the high single digits for earnings per share.
But that's not all. Our pros say the earnings report also revealed a slew of other negatives. They include:
- steep decline in computer sales
- contract business was down
- customer acquisition costs up
- gross margins down 51 basis points
But of all the woes, trader Joe Terranova says it’s that last one that’s has him most concerned.
“Up until this point margins were strong but now they’re beginning to contract,” says Terranova. “The Street will have a problem with that. I think this is a stock that’s going under $10.”
Does that mean go short? Not necessarily.
Trader Jon Najarian says if the stock traded down to $10, he’d step in and buy. And trader Josh Brown said at that level, "value guys would probably take a look. It has a 3.3% dividend yield.”
And there's also chatter that Staples could be a buy out candidate. Nonetheless Terranova thinks the stock is challenged. "The CDS market is blowing out. That tells you something."
Looking at earnings a little more closely, Staples' net income fell to $120.4 million, or 18 cents a share in the second quarter, from $176.4 million, or 25 cents a share, a year earlier. Analysts on average were expecting a profit of 22 cents, according to Thomson Reuters I/B/E/S.
Sales at stores open at least a year fell 2 percent in North America, as customer traffic fell and average order size was flat. Sales of computers and core office supplies were particularly weak, Chief Executive Officer Ron Sargent said.
Posted by CNBC's Lee Brodie
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Trader disclosure: On August 15, 2012, the following stocks and commodities mentioned or intended to be mentioned on CNBC’s "Fast Money" were owned by the "Fast Money" traders; Joe Terranova is long VRTS; Joe Terranova is long MCD; Joe Terranova is long SBUX; Joe Terranova is long WFM; Joe Terranova is long AAPL; Joe Terranova is long EMC; Joe Terranova is long NXPI; Pete Najarian is long AAPL; Pete Najarian is long C; Pete Najarian is long INTC; Pete Najarian is long YHOO; Pete Najarian is long SBUX; Pete Najarian is long FB; Pete Najarian is long MSFT; Jon Najarian is long call spreads in AAPL; Jon Najarian is long call spreads in ABX; Jon Najarian is long call spreads in GLD; Jon Najarian is long call spreads in JPM; Jon Najarian is long call spreads in HUN; Jon Najarian is long call spreads in CSCO; Jon Najarian is long call spreads in FB; Jon Najarian is long call spreads in GMCR; Jon Najarian is long call spreads in OAS; Jon Najarian is long STSI; Jon Najarian is long CBOE; Jon Najarian is long CME; Jon Najarian is long GLUU; Brian Kelly is long INGR
For Jurrien Timmer
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CNBC.com with wires.