Why These Office Supply Stocks Surged Today

Why These Office Supply Stocks Surged Today

While Fools should generally take the opinion of Wall Street with a grain of salt, it's not a bad idea to take a closer look at particularly stock-shaking analyst upgrades and downgrades -- just in case their reasoning behind the call makes sense.

What: Shares of Office Depot and OfficeMax both climbed about 7% today after Janney Capital Markets upgraded the pair of office retailers from neutral to buy.

So what: Along with the upgrades, analyst David Strasser boosted his fair value estimate on Office Depot from $4 to $8 and for OfficeMax from $13 to $21.50. The two companies have performed sluggishly since agreeing in February to a $1.2 billion merger -- which is expected to close by year-end -- but Strasser believes that the weakness provides an attractive entry point given the deal's significant savings potential.

Now what: According to Janney, the incremental costs from the merger will be small relative to the juicy upside. "We believe the company's estimate of $400-600 million in synergies is reasonable, and incremental opportunities from store consolidation, which are not included in these estimates, provides somewhere between a cushion and upside to these estimates," noted Janney. "We anticipate store closure synergies to be about $125 million based on our analysis of 300 overlapping stores within 2 miles of each other in key markets." But while the combined company is definitely set up for some solid savings, increasingly intense competitive pressure -- from both brick-and-mortar behemoths and online disruptors -- makes the long-term story far more uncertain.

More compelling stock picks
Every good investor wants to build that perfect portfolio that they can set and forget forever. Fortunately, it's easier than anyone ever knew. We've uncovered the pillars of such a portfolio today and we're willing to share The Motley Fool's 3 Stocks to Own Forever. Simply stated, we think they're the best stocks for true long-term investors to know about, and you can uncover them for free today, instantly; just click here now.

The article Why These Office Supply Stocks Surged Today originally appeared on Fool.com.

Fool contributor Brian Pacampara has no position in any stocks mentioned. The Motley Fool has no position in any of the stocks mentioned. Try any of our Foolish newsletter services free for 30 days. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool has a disclosure policy.

Copyright © 1995 - 2013 The Motley Fool, LLC. All rights reserved. The Motley Fool has a disclosure policy.

Originally published