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Bull of the Day: Office Depot (ODP)

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Office Depot (ODP - Free Report) , now known as The ODP Corporation, is one of the leading providers of business services, products and digital workplace technology solutions around the globe. On July 1, the company went through a reorganization, and created a holding company to help organize all of its various businesses.

Q3 Earnings Impress

Earlier this month, ODP soared after the company reported better-than-expected third quarter earnings results.

Revenue of $2.5 billion fell 9% year-over-year but improved 18% quarter-over-quarter, while sales in its retail segment down only 3%, showing how consumer spending is continuing to rebound.

This top-line performance helped ODP generate bottom-line profits. GAAP net income hit $57 million, surpassing analyst expectations.

The company’s e-commerce channel performed strongly as well, up 20% and approaching over $1.2 billion in sales on an annual run-rate basis.

Investors were also impressed by ODP’s liquidity. Free cash flow soared 64% over the prior-year period to $295 million.

“Our improved results reflect the continued focus on our low cost model and the positive dynamics of our ecosystem, which combines our diverse routes to market with an expanded product portfolio and flexible supply chain capabilities, meeting the needs of businesses and consumers alike,” said CEO Gerry Smith.

ODP Breaks Out

Office Depot, Inc. Price and Consensus

 

Since March 23, shares of Office Depot have climbed over 70%. Estimates have been rising too, and ODP is a Zacks Rank #1 (Strong Buy) right now.

For the current fiscal year, one analyst has revised their bottom-line estimate upwards in the last 60 days, and the Zacks Consensus Estimate has moved up from $3.47 per share to $4.55 per share. Earnings are expected to grow about 11% compared to the prior year, and in 2021, ODP’s bottom line should continue double-digit year-over-year growth.

Beyond the near-term setback that’s Covid-19, ODP and its management team are determined to build on recent momentum. And while the company did not provide guidance for the fourth quarter at the time of the Q3 earnings release, ODP is planning on giving an outlook update at its upcoming Investor Day event.

ODP has also resumed its share buyback program now that its retail business is stabilizing and profitability has returned; it still has $130 million in authorization before 2021’s end.

If you’re an investor searching for a retail stock to add to your portfolio, make sure to keep ODP on your shortlist.

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