Why is Office Depot a Strong Buy? - Analyst Blog

On Jul 8, 2014 Zacks Investment Research upgraded Office Depot, Inc. ODP to a Zacks Rank #1 (Strong Buy).

Why the Upgrade?

It seems that Office Depot's strategic measures have finally started paying off. In 2013, the company had merged with Office Max in order to better compete with rivals like Staples, Inc. SPLS and Amazon.com Inc. AMZN. Subsequent to this, the company announced closure of 400 overlapping locations across North America by 2016 to generate cost savings of $75 million annually. It expects to close 150 locations by 2014.

The success of these initiatives is well reflected in the company's better-than-expected first quarter 2014 results. Office Depot also provided an upbeat guidance and increased synergies expectations from the merger for the year.

Office Depot's adjusted earnings per share came in at 7 cents, rising over twofold from the Zacks Consensus Estimate and proforma earnings per share of 3 cents. Further, total revenue of $4,354 million increased about 60% from the prior-year quarter and surpassed the Zacks Consensus Estimate of $4,288 million. Most of the key metrics including operating income depicted an upward trend, benefiting largely from the merger.

As a result, the company has provided encouraging outlook for the year. Including the synergies from store closures, management expects merger synergies to be $675 million by 2016, up from earlier expectation of $600 million. Out of total synergies, nearly $180 million will be realized in 2014. Moreover, driven by higher synergies, Office Depot now expects adjusted operating income to be at least $160 million, up from the earlier expectation of at least $140 million.

All these positive factors triggered an uptrend in the Zacks Consensus Estimate for 2014 which increased 45.5% to 16 cents per share over the last 90 days.

Other Stocks to Consider

Another stock worth considering is Barnes & Noble, Inc. BKS which carries a Zacks Rank #2 (Buy).
 

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OFFICE DEPOT ODP: Free Stock Analysis Report
 
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