Credit Suisse cuts Office Depot to 'Underperform'

Analyst downgrades Office Depot, says company won't earn profit next year, prefers OfficeMax

• On 11:51 am EST, Monday November 2, 2009

CHICAGO (AP) -- An analyst cut his rating on Office Depot Inc. on Monday and said that the office products retailer isn't likely to earn a profit next year and prefers OfficeMax Inc. as an investment.

Credit Suisse analyst Gary Balter downgraded the stock to "Underperform" from "Neutral" and said the company has a tough road ahead.

"Even with the recent sell-off, the market is overly optimistic on the turnaround scenario at Office Depot," Balter wrote in a client note.

Balter said competition remains high, and the company is struggling with its international business. Sales have also remained soft in its business solutions division, which offers products for small businesses rather than consumers.

Last week, the company said restructuring charges and slumping sales, especially on large-ticket items such as furniture, caused Office Depot to post a bigger third-quarter loss. Adjusted results, however, topped Wall Street expectations.

Balter said that it's hard to measure Office Depot's financial performance because it's tough to tell what actual comparable results are because it has taken charges and write-offs that resulted from a "long-standing and still unsuccessful turnaround effort."

OfficeMax, said Balter, has better growth prospects and passed Office Depot in terms of growth in business solutions this past quarter. Last Thursday, OfficeMax said it moved to a third-quarter profit from a year-ago period weighed down by a hefty write-down.

Shares fell 16 cents, or 2.7 percent, to $5.88 in midday trading.

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