United Stationers (USTR): Discounted blue chip

By J.Royden Ward, Analyst, Cabot Benjamin Graham Value Investor
From Cabot Wealth Advisory 9/17/13 Sign up for free Cabot Wealth Advisory

The following four guidelines are part of the eight-guideline strategy that I use in Cabot Benjamin Graham Value Investor. You can easily find my complete analysis and latest buy recommendations in the Investor, but here is a partial list:

1) Free cash flow more than $20 million.
2) Return on equity more than 15%.
3) Positive earnings growth during the past 5 years with no deficit.
4) Dividends currently paid.

I screened my Benjamin Graham Common Stock Database and found this high-quality company that fit my criteria. It’s a leader in its sector, and has excellent future prospects.

United Stationers (USTR) is a leading wholesale distributor of business products, with sales of $5 billion. The company stocks a broad range of 130,000 items including technology products, traditional office products, janitorial and breakroom supplies, office furniture and industrial supplies. United Stationers maintains 64 distribution centers that deliver products to 25,000 dealers. This network enables the company to ship most products overnight to more than 90% of the U.S. and to offer next-day delivery to major cities in Mexico and Canada.

Sales in the industrial supplies category are up 31.5%, profiting from the acquisition of OKI Supply in the fourth quarter of 2012. Reduced corporate and government spending offset these gains, however. Sales were flat during the past 12 months ended 6/30/13, although EPS advanced 18%. Cost cuts, staff reductions and benefits from the OKI purchase boosted EPS.

I expect sales to increase 5% and EPS to climb 9% during the next 12 months. At 14.0 times current EPS and with USTR shares selling well below Standard & Poor’s discounted cash flow value of 53.30, the stock is undervalued. I expect USTR to advance to my Minimum Sell Price of 51.10 within one to two years.

I will continue to follow United Stationers and other blue-chip, high-quality companies in Cabot Benjamin Graham Value Investor. My October issue will include new undervalued Graham-Buffett type stocks. I hope you won’t miss it! Click here for more information.