A Closer Look at ACCO Brands

 | Sep 17, 2013 | 12:15 PM EDT
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While any investment I make is ultimately the result of my own research and analysis, I always like to check out what others are saying or thinking about a particular company. It's critical that any investment be made based on sound analysis and reasoning, not the mood of the crowd, and there are smart sources that have enough credibility to take note.

That's why when I saw that the Value Line Investment Survey predicted shares of ACCO Brands (ACCO), an office products manufacturer known for its Swingline staplers and AT-A-GLANCE calendars, could quadruple in the next three to five years, I decided to look a little closer. From my initial screening of the company, such a prediction doesn't seem farfetched. Such a huge upside potential suggests a potentially wide margin of safety: A stock with the potential to quadruple suggests that you are buying a buck for a quarter. 

ACCO shares currently trade around $7.30, about the midpoint of the 52-week low and high. A market cap of $820 million and net debt of $1 billion equates to a total enterprise value of $1.8 billion. Sales in 2012 were $1.8 billion, of which $117 million was profit. Last year, ACCO's business sprang back from the economic slump. In 2009, ACCO reported sales of $1.2 billion and booked a loss of $118 million. Since then, sales and profit have climbed steadily.

So far in 2013, ACCO's results have been mixed, and the share price has fallen as a result. ACCO has yet to realize the full-cost savings of recent acquisitions while the demand for office products remains soft in 2013. Yet the long-term environment is more optimistic for ACCO. The company has an expanding presence in emerging areas like Mexico, Brazil, Canada and Asia. In fact, ACCO's recent sales growth came primarily from its acquisition of MeadWestvaco's (MWV) consumer products business. ACCO's core business continues to struggle but it should improve over the next several years as costs savings improve profitability and international sales growth (often at higher gross margins) affect the bottom line.

Analysts see earnings per share of $0.89 in 2013 and $1.03 in 2014. Those numbers could be on the low side if cost cuts have the effect management expects. In 2015 and beyond, EPS could jump further as the U.S. business becomes more efficient along with a greater contribution overseas. At a 15x earnings multiple (today's trailing price-to-earnings ratio is 20) ACCO shares could be worth $15 or more within two years -- double today's price.

The market clearly recognizes the difficulty that ACCO faces, as well the tough market for office and school supplies. It's a real concern and ACCO's progress should be monitored closely. But long-term investors may want to look closer because ACCO clearly offers potential returns that far exceed what the general stock market is likely to offer.

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